I've been using Heroku since I heard about it on the Ruby on Rails podcast. It offers a hosted Rails development environment (all web-based), with instant deployment ... essentially you are running your dev, test and production environments 'in the cloud'. Heroku themselves use Amazon S3 I think. It's worth checking out, even if you are not specifically interested in rails. A great example of how to operate 'up in the clouds'.
A couple of key things I've learned/noted in working with heroku..
Disabling the heroku toolbar
You probably don't want the heroku toolbar appearing for public users of your application (and I found it had some issues with IE). Disabling the toolbar is done by creating a file config/heroku.yml:
toolbar_collaborators: true
toolbar_public: false
request_timeout: 10
(picked this tip up from the mailing list)
Running with Rails 2.1
Rails 2.0.2 is the default, and 2.1 support took a while to arrive. It's here now. Simply update your config/environment.rb file to specify..
RAILS_GEM_VERSION = '2.1'
Distributed Version Control
Version control using git is rolled into heroku. And if you want to develop locally, there's a heroku gem that simplifies setting up your local clone. Once git and the heroku gem are installed, a typical session goes like this:
heroku create myapp
heroku clone myapp
cd myapp
ruby script/server
[..work locally for a while..]
git add .
git commit -m "some changes made locally"
git push
[..work on the server for a while and commit..]
git pull
Postscript Aug-09: heroku have since split their services in two: herokugarden.com, which includes the online, web-based editor, and heroku.com which is intended for high-performance production deployment (with no online editing)