Well I wasn't too far off a month ago when I hypothesized Amazon providing a commodity virtual machine service.
Amazon Elastic Compute Cloud (Amazon EC2) is a web service that provides resizable compute capacity in the cloud. It is designed to make web-scale computing easier for developers....
You have complete control of your instances. You have root access to each one, and you can interact with them as you would any machine. Each instance predictably provides the equivalent of a system with a 1.7Ghz Xeon CPU, 1.75GB of RAM, 160GB of local disk, and 250Mb/s of network bandwidth.
I was off a couple of factors on the memory, an order of magnitude on disk, and probably a factor of 2 on CPU speed. I got the pricing just about right and even hit on the bandwidth discount for communicating with S3. Simple web based specing and ordering of VMs got lost a bit in the need for security, but I can't fault Amazon as they have to make sure the service doesn't become the spawn of horrifically spamming botnets.
I didn't realize it at the time, and many in the blogosphere are having the same incorrect interpretation, but EC2 isn't supposed to knock out private virtual and dedicated server solutions. EC2 is really for folks who need to build a cluster of machines but don't have the sysadmin staff, rackspace, and funds for hardware, available. For a mom and pop LAMP server running a lightly used Web site, EC2 is probably overkill. For a small Web startup short on cash and people, EC2 might be an attractive alternative to building your own data center.
Put it all together and you've got cheap, powerful computational units (VMs), reliable distributed messaging (SQS), and inexpensive massive storage (S3), all from one vendor, with reasonable (not easy, but reasonable) programmatic APIs. Interesting times.