An Amazon EC2 “Micro” (smallest) linux instance can reliably serve a dynamic website to how many users?
How “large” of a website can one reliably host on Amazon EC2′s micro instance?
Running apache, nginx, lighty, I don’t care.
Just curious how far that $5.20/month would get you and why I should or should not go this route.
That is so dependant on how resource heavy the site is, not possible to give an generic answer to such an unspecified question. Kind of like; how much water can the sun evaporate?
Here’s what I would do:
Setup nginx + php-fpm, setup a phpinfo(); .php page, cache it with fastcgi_cache and then try it with apache benchmark, or even loadimpact.com. Don’t forget to post your results! 
Please note that there are information that suggests that the AWS EC2 Micro Instance’s CPU time frequently is stolen (I think written by a SF member), it does NOT deliver a consistent CPU resource, as stated on AWS site.
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As a heads up, the micro instance really gets bad sometimes (often). Application-dependent of course. Installing openjdk caused it to freeze for 8 hours (I timed) @ 100% cpu (based on Amazon’s cloudwatch) before i just terminated the instance. Similarly, refresh the page too many times (I had installed the server on small, then transferred it into micro, since after five times, openjdk wasn’t going to work on micro) and it will go into its freeze mode again.