I came from a windows background and had never used linux but need mod_python for a project. I was up and running with EC2 (configured they way I wanted it, installing the packages I needed and pulling my custom scripts off of s3) in about an hour. It really wasn't all that hard. I'm now looking at porting all of my stuff as EC2 instances sure are cheaper than my dedicated windows boxes.
This is inaccurate. While bundling an image, you can specify its size (max 10GB), http://docs.amazonwebservices.com/AWSEC2/2008-02-01/Develope.... The unused space is the free space in the root file system.
It's a very bad idea to keep only 16MB free - it does fill up pretty quickly.