A while back I wrote about my experience with Amazon EC2. Back then, I was completely sold on the idea, and in fact I've been chugging along with a few sites on there ever since.
If you need
- A completely configurable/customizable windows or linux environment
- Ability to scale up or down quickly
- Costs to scale with usage
It's amazing to spin up a development server that exactly replicates your production system. Test out a new build of the software on it, and then deploy those changes to your production server.
Just recently they reduced the pricing on the "small" instance I've been using, and they introduced a new "micro" instance. Economically it's not the cheapest web hosting solution you'll find, but dollars :: value it holds it's weight.
Lately, my new project isn't using EC2. Take a look at the first requirement I put up there, the "completely configurable/customizable" one. EC2 gives you exactly that. But if you're willing to sacrifice a bit of customization then Google App Engine can be a better platform to target.