In the days of Bitcoinica I lost a lot of bitcoin which was lent out for shorting when the exchange collapsed along with my funds. For me the biggest risk is easily that the exchange holds your bitcoin. You should only lend out very small amounts and hold the majority of your stack safely on your own encrypted wallet.

In terms of shorting the market, all those bitcoins have to be bought back one day or another so for long/bullish perspective shorting only adds fuel to the fire in future.