The Android version saves all the photos I've taken with Instagram locally. Of course I don't know whether there are copies of these images on their servers, not published to my public stream, as the app doesn't show anything like that.
It saves the local copy after you apply a filter, so at the same time it is uploaded but probarbly before the user is "finished" with the upload process (screen 2 after applying filter is to add a caption, and while that is happening the photo is uploaded).
But then again that is like writing erotic short stories in your twitter apps drafts and be outraged that they are saved online.
