Sure, why not? Unless you've encrypted the thing with keys you (not AWS) control there's absolutely nothing stopping them from doing so -- and even if you do have the drive encrypted at rest, they still have access via the virtualization layer while it's running.

Amazon have very expensive lawyers, I'm sure that their T&Cs are flexible and woolly enough to include some reasonable justification for doing whatever they please with your VM.

"in order to secure our service against abuse..."

"in response to a court order..."

"...in order to provide better service, we reserve the right to."