It's a pretty crowded space. And XDrive gets you 5 GB for free, 50 GB for $9.95 a month. I can't expect Dropbox to charge those prices, given S3 as a backend. The margin just isn't really there, especially given the number of uses that will want free storage. And I think competitors can duplicate Dropbox's nice front end. In fact, here's an open source front end to SVN which is similar to Dropbox's:
I'm going to respond to my own post, and add that... for the initial phase where you don't expect to make money... you have chosen a great setup. S3 is a robust , reliable, and easy way to handle the intial ramp up should hoards of users sign up, a concern I raised in another post. You probably have plans to get onto your own backend in the long-run.