The difficulty of scaling is not in getting the hardware, but in the operational burden and frequency of failure. With EBS, machine and disk failures are effectively irrelevant and you can instantly migrate to another machine. You don't need to worry much about data loss. If a disk breaks in one of your machines, EBS keeps working. If the machine breaks, the data is still in EBS. If EBS breaks, the back-up is still in S3.

Dedicated hosting and rackspace cloud may be cheaper, but if you expect to be in a situation where failure becomes frequent, you'd better be on EC2.