The reservation fee for a small instance is $227.50 annually (http://aws.amazon.com/ec2/pricing/) but you still pay an hourly rate to run it, albeit a lower rate than for a non-reserved instance. Running a small reserved instance for a year costs $227.50 + ($0.03 x 24 x 365) => $490.3/year or $40.86/month. (This is in the US East region.)
Nothing has been said on pricing yet. It's free while it's still in developer preview.
Pricing will be revealed later. But even if it ends up being a 'mess' like app engine's pricing situation, it should be much easier to move onto another platform.
I'm convinced they were giving it away at a loss before. Now it's priced the same as similar services which makes sense. Obviously it sucked for the people that caught in it, but the expectations are properly set this time around.
This addition to app engine makes them more appealing than heroku at this point.