I agree. I wouldn't completely write off those smaller servers and I think it serves as a very good entry point for learning Linux and server administration. If you're just starting out with Node or Rails its great.

I would recommend someone a Low End Box over a free Amazon Micro Instance any day, just because the CPU they limit you at is just bad. You start Apache or Nginx on those things or do a big yum install/apt-get and the terminal slows to a crawl.

Running a Production server off any low end box is definitely risky depending on who you're hosting with, but that goes without saying. I'd second BuyVM and Xen, I had a VPS with nordic and my cluster just died one day and was unrecoverable. They gave me a free small instance for half a year, but I opted to just switch instead.

My other recommendation is definitely Rackspace. Their low end service is only around 10 dollars a month, their chat support service is pretty good, and its fast and easy to scale. Database transactions on the cloud are still shit however. :( Really want a dedicated server if you're a larger or badly optimized site.