Disclosure: I used to work for Linode.

Speaking objectively, I ve heard from several customers that have migrated both from EC2 (as well as to EC2) that say Amazon EC2 is a bit difficult to work with for hosting Web services. From the cost per resource to the various quirks of their service -- last I heard, EC2 is designed more for utility computing than running a Web site and its associated services. I would recommend EC2 more for these kinds of applications:

• Processing videos and other multimedia.
• Throwaway computing, where nodes are added and removed as demand goes up and down.
• Any service where CPU is the bottleneck.

A VPS is a much better choice for you, as you get root and -- if a company does its VPS service right -- scaling is ridiculous easy. If you plan for scalability from the get go with a load balancing solution, you can add a node with Linode in under a few minutes.

The two front runners in the VPS market are Slicehost and Linode. Each have their advantages and disadvantages. Again speaking objectively, Linode s cost per resource is better than Slicehost s, and Linode offers a few services Slicehost does not. Both have fairly active and helpful communities, and both are reliable services. Here s a comparison of both where Linode was ultimately chosen, and a discussion on Slicehost s forums with customers taking both sides.

I m happy to answer any questions you have, on StackExchange or off.

Go with Linode. You won t regret it. I was a customer long before I was hired.

Another thought I just had is that it s unwise to put all your eggs in one basket; I recently completed full support for the wonderful libcloud project, and Slicehost is fully supported as well, as is EC2. Regardless of what platform you choose, management tools are catching up with cloud ideals.

EC2 is only reasonable if you plan on taking advantage of the scaling. With your dev server, I m sure you re going to want it up at all times, and with that I think the cheapest instance is like $70 a month at amazon.

Just got for Linode. Great community and all that for only $20/mo.

While I agree with other answers that EC2 is more for data processing than web hosting, I found that now EC2 offers free micro-instances for one year and you may sign up for one and play with it yourself and see which is the best option for you.

If you re not planning on scaling up and down on a regular basis I would recommend a VPS. Jed Smith mentioned two options for that and another choice for a VPS is http://prgmr.com/xen/ which I ve used and am happy with. They don t offer as many options as Slicehost or Linode, but they offer more RAM per dollar than most other providers I ve seen. They also don t offer any wizards or ajax console access or other high level features. However, if you re ok with setting everything up via a command line console they are an option you should consider.

I have been using https://www.atum.com for years. I was with Amazon, it just didn t cut it for my needs. We have a lot of ram and disk requirements, I found the IO/RAM to be quite bad.

I used Linode for a while, they were quite good as well. I went to Atum mainly because of a friend who was with them, had good things to say about the performance. I have a lot of customers in Canada and that is where there datacenter is because of the patriot act, it had to be in Canada so. Atum VPS has been great so far to me =)

We have been using vps.net for a while and quite satisified with it. I love linode s offerings as well though I haven t used it yet.