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Multiple reasons:

1) you can't get new hardware delivered and get it up and running, all in under 10 minutes.

2) also, assuming the previously gathered hardware is not needed anymore, you can't just return it and say "i used it only for two days because i had a traffic spike, take this 200$ and we're okay.

3) you can't programmatically install, configure, reinstall and reconfigure hardware configurations, networking and services on phisycal services. At least, not as easily.

Many others, but these are very valid points.

Of course, Amazon is not the solution to all of the problems you could ever have, but still it solves a great deal of problems.

1) ok got me there (but SoftLayer does offer VMs too, which presumably have a faster turn up time)

2) SL has hourly physical server rental now (turn up is quoted at 20-30 minutes though)

3) SL has an API for ordering changes, you can setup a script to run on first boot (and probably system images too). What are you thinking for network configuration? Really the only thing I've had to configure on SL is port speed (somewhat API accessible, but not if they need to drop in a 10G card/put you on a 10G rack, etc), and disabling the private ports (API accessible, real time changes).

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