Now this is starting to get interesting! (via Greg)

Amazon have announced Amazon Elastic Compute Cloud (EC2). Built along the same economic principles of their S3 storage service it allows you to gain access to a cloud of compute servers that provide you with access to a virtual compute resource that is:

“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.“

Your “app” consists of a set of one or more “Amazon Machine Images” (AMIs) which are uploaded into their “cloud”. The AMIs can be whatever you want – webservers, app servers, databases, etc with backend file storage provided by S3 – which then run in the cloud.
As with any “grid” style compute service the idea is that you only pay for what you use. The pricing model seems pretty similar to S3s:

• Pay only for what you use.
• $0.10 per instance-hour consumed (or part of an hour consumed).
• $0.20 per GB of data transferred outside of Amazon (i.e., Internet traffic).
• $0.15 per GB-Month of Amazon S3 storage used for your images (charged by Amazon S3).

I have only skimmed the site very quickly but this is definitely somehting that needs to be played with!

Some documentation is here.