Before I start, I want to say that I am not a server guy, although recently I have been becoming one with some much infrastructure I needed to build...
Anyway, I cannot but rave at Amazon's EC2!. I am using it to host ASP.NET MVC sites and it works great, and the price is a joke for the micro instances, that are more than enough for hosting at least a dozen small websites.
I have been looking at the service 10 months back, but they did not support WIndows Server 2008 which is needed to host ASP.NET MVC, but now they have it, so I was finally able to test it out. I already have one Windows 2008 virtual dedicated server in Europe, which costs me about $20 a month, which I thought was cheap because this usually runs you at least $40 a month. Anyway, what I got running as a cloud instance has more ram (600 mag) and is fast as hell.
Issues: Here were were my hiccups when setting up: I pretty much used this article as a reference for setup. For some reason, I had issues getting the password for the server for a while, so I ended up creating more than one instances before I got through. The next "mistake" I made was not reading up on the "security groups" so as a default, it set access to the server only from my home IP address, even for the HTTP connection, so I moved this website there, looked at it and it ran fine, but when I looked at it from work it was down, so I thought something is wrong with the server which took me a day or two to realize track that this was actually because of the security group feature, which by the way is awesome!
Customer service: you have to pay for but you get what you pay for: the best customer service ever! Nothing like you typical hosting company. They answer right away, give you very lengthy explanation, analyze the whole situation. I in fact bought the customer service, got my issue resolved and canceled it to save money :) so you can make even customer service "on demand" and "scalable" :)
Backup: I was trying to get my other hosting provider in europe to backup my whole instance, and they said that this is something they are working on and will probably cost a lot of money. Again, not being a server guy, I have spend many sleepless nights configuring that server, and the ideal that it could just be hacked and all lost was my nightmare. EC2 backup is like a dream come true. It takes like 10 seconds and you can relaunch as another instance in another country right away. I mean this is really awesome
In conclusion I just don't know how another hosting company can still stay in business. Yes there is little learning curve, but if a UI guy can figure out how to use this, then anybody can. They made the server stuff so easy to use that I think I am starting to like it :) Anybody needs help setting up their EC2 server? :)