The web hosting business has always been cut-throat, where price cutting and overselling are the norm. And since we started to have fast enough CPUs several years ago, the price has been dropping ever faster, as the CPUs continue to work after the initial costs have been recouped. For example, nowadays there are a lot of deals for dedicated servers with Xeon L5420, a quad core 2.5Ghz processor released in Q1 2008, before EC2 went public.
The sad part about EC2 is that it doesn't shy away from overselling while keeping the same high price. The micro instance with its meager CPU allocation would be the poster child of overselling. There are some naive crowds here who believe EC2 doesn't oversell. Well, just ask Netflix: http://blog.sciencelogic.com/netflix-steals-time-in-the-clou...