There is no real recorded history of either the two-word photo booth or of the single word photobooth. Not only that, but both words seemed to have “appeared” out of thin air as there was never a company with this specific name, such as Polaroid or Kleenex. The two-word photo booth appears to prevail by an overwhelming margin and is the accepted version of dictionaries.
So is photobooth still correct? Of course! People still understand and accept the single-word version and many businesses use it as part of their name. Maybe the reason the single-word version is still around is because it appears more aesthetically pleasing as a single word instead of two words.
And who knows, maybe one day in the future, photo booth will morph into the word photobooth and photo booth be phased out. This is a common occurrence in languages known as compound words – when two or more previously unrelated words are joined together and the combination gains acceptance.
So go ahead, use either version because both are correct!