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What is the target application and who is the target customer or this service? It seems like a solution looking for a problem. How often does an application need to burst, but only within the resoure limits of a single VM? The problem of burst capacity seems solved already by simply scaling the number of instances in a well designed architecture.

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You're assumiung a "well designed architecture" - and you're assuming that "well designed" maps to "perfectly horizontally scalable". Neither assumption need hold.

Oh, also: while I have no idea how this is actually implemented, under perfect conditions it's possible that this might be able to balloon your container in response to a page fault. That means you get instant scaling, rather than the couple of minutes it takes to spin new VM instances up.

but only within the resoure limits of a single VM?

I suppose the normal usage pattern would be to rent as many of their smallest VMs as needed for your base-load, and then scale them up simultaneously when more capacity is needed.

It does sound intriguing, but I'm honestly rather skeptical about the feasibility of this (at scale) with today's virtualization tech.

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