We want micro-services that are available as we need them, at any scale, and we never want to deal with a 'server' again.
"You break the entire model of an oversubscribed multi-tenant container system" - we don't care that much about how it's implemented, or what underlying model is used, as long as it is secure, robust, and reliable.
I'm going to argue that's currently unrealistic, but if you want someone to build something, tell them its impossible.
Clearly its not easy to build a system that'll run code on demand as fast as bare metal; accept the trade offs with the understanding why you're making them.
Moreover, it's a rather fundamental opportunity for them: Lambda's are a form of 'container' and they are exactly what so many of us want. The deal-breaker for us was the latency issue.
Amazon is a pretty smart company, and it's a big opportunity, I'll bet they eventually get this sorted out.