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The odds of EC2 being owned and Rackspace not being owned are astronomical.

Certainly agree. Perhaps it would be better to suggest moving to dedicated servers, depending how security-paranoid you are, anyhow.

Dedicated servers only give you the illusion of higher security.

Please explain.

You have the same obligation with an EC2 AMI that you have with a physical server.

Using a cloud/vps/whatever provider does not obviate the need to secure the base OS.

Using virtualized hardware does expose you to vulnerabilities in the virtualization layer, though...

Those get "0wned" on a regular basis too.