EngineYard was doing uber expensive fully managed rails hosting at the time Heroku go started. Wasn't till over a year after Heroku launched that EY launched their alternative (Solo->Cloud->??). Pretty good tools, but fairly different than Heroku. They focus on managing EC2 instances instead of Heroku's "Dynos" (small abstracted chunks of easily scalable server resources).

To me EY seems like a much better version of Linode + install scripts that are targeted to Ruby users. Heroku seems to me more like Google's AppEngine, except much more expensive and without the autoscaling.