Heroku: Rails hosting done right
For general development and flexibility I still like a semi-managed VPS (RimuHosting.com is the best I have found so far) because I can run a mixture of Java, Rails, Squeak+Seaside, etc. and have a home for master git and svn repositories. That said, for deployment, a custom deployment architecture on EC2, or an abstract scalable platform like AppEngine or Heroku really does make a lot of sense. I enjoyed talking to two principles of Engine Yard (Ezra Zygmuntowicz and Yehuda Katz) at Merb Camp last year but I have not yet had an opportunity to use their platform on a customer job.