EC2 seems to be doing fine on virtualization. A service of that kind would be impossible to run without a VM layer inbetween. So yes, you pay a performance pena

EC2 seems to be doing fine on virtualization. A service of that kind would be impossible to run without a VM layer inbetween. So yes, you pay a performance penalty, but you get something in return: Flexibility. And for some use-cases flexibility is far more valuable than raw performance.