Remember kids, an EC2 is not a server. It's a process on someone else's server and all of your data is stored in /tmp. Do plan accordingly.
Cloud platforms let you avoid physically dealing with the hardware, and conveniently using ec2-create-snapshot instead of tapes back-and-forth, but the paradigm is exact the same.
If you care about your data and your servers, you have to plan for failure. Cloud or not.
This is quite different from KVM, where the hypervisor is built as kernel modules in the linux kernel, and the host linux OS acts as the management instance.
Functionally, however, the results of this setup are similar to being a process: the hypervisor may schedule your instance's CPU time, and your kernel is specialized so that when it needs memory, it calls into Xen for the appropriate mapping (similar to VM in kernel).