I haven't seen much competition on this level ... Rackspace? Maybe Azure, at a stretch? I suppose that's the effect they're hoping for, though: other companies to look at their prices, crunch the numbers and go "nope, we can't beat those, next business plan please".
I've very happy with my Linode and Joyent virtual machines for regular hosting, although spinning up an EC2 machine or ten to test something quickly or handle a flash crowd might be nice.
It's CloudFront and S3 that I really like, though. If my site suddenly gets Slashdotted (it did make Digg once) it's just a crazy-looking spike on the graph and an extra few $ on the month's bill - not downtime or a service suspension. Likewise the image storage I do for another web application: I don't need gigabytes of space lying unused 'just in case' - I just stick it in S3.
Now, if they could just bring their SimpleDB pricing structure to RDS: full-blown SQL, but pay-as-you-go instead of fixed machine sizes... I seem to remember there is a company doing something similar on top of EC2 themselves already, somewhere?