None of this is meant to sound harsh, but I would like to detail out my impressions:

Mosso is announcing 256MB Xen instances for 1.5 cents per hour (under $11/mo). You're at $8/mo and only have 1 rack. Mosso is backed by Rackspace. You're offering 6GB of space while Mosso is offering 10GB, but you're throwing in 40GB of transfer. So, maybe you're a bit cheaper (considering Mosso's 22cents/GB bandwidth), but if one of the server boxes dies, can you replace it within an hour or do you need to have one shipped from Dell? You probably don't have a lot of spare capacity lying around. Likewise, if I need to scale up, it might take a while for you to provision hardware.

There's very little information on your service in some ways. Like, is the storage RAID? What if I need an OS reload? Is there a nice control panel for things like that? Heck, do you even provide DNS?

Form an LLC. I don't like dealing with some guy. The LLC makes me feel happy. . .even if it's just some guy.

You could be the next Slicehost. From what I know, they didn't start off too differently. I'd simplify the pricing a little (or at least get rid of the 64MB one - it simply isn't enough memory, especially considering the $1/mo cost savings). In fact, start at the $20 level. At that price, you're offering 1GB of RAM and that's a nice level to be offering for $20. All the lower levels just make the service look cheap and unreliable. I mean, how much can you make on $5/mo considering the potential for things like chargebacks? I see that the $8 plan is your most popular (and that you mirror - from your profile). Maybe keep it starting at 256, but for $4 more people could get the 512.

Create an auto-provisioning system. This is a must. It's the difference between looking awesome and looking cheap. It's why Slicehost did so well - a couple minutes and you were up, faster than EC2 oftentimes. Offer backups, they make people feel warm and fuzzy. If you're really in it, get a second rack and more equipment. That will make people feel a lot more safe. It also means you could start offering HA setups. I'm not stupid, but sometimes I just like a simple control panel. I don't want to learn a new API if I don't have to.

The issue kinda is that your service would be cool for personal stuff, but I couldn't launch production stuff on it. For production stuff, I like having HA setups with IP failover which means having instances on different machines in different racks. If I'm going to go Xen, I might as well get the benefits of instant (or near instant) provisioning from Slicehost/Linode/EC2. Sure, let's say they're twice as expensive or more. They're still cheap.

Offer the ability to snapshot an image and then launch another instance of it. That's really popular with IT managers.

And you don't have to be so cheap. In fact, I'd have to say that's your biggest flaw - you underestimate how valuable you are. Make some money, put time into it. I haven't looked into it, but there's a decent chance that RAM prices follow a predictable decline in price over several years. So, if you find that RAM halves its price every 2 years, maybe offer customers 25% more RAM every 6 months - predictably. That sure beats the nebulousness of Slicehost and others. I'd definitely pay $20 for a 512MB server with the knowledge that I'd be getting regular RAM increases as hardware costs go down. Although you probably know what your costs are better than anyone.

Sorry for the length of this. It's just really cool to get to talk to someone running a service like this. Oh, idea, for backups you could possibly integrate tarsnap which would compress the images before storage and so for people who didn't use much space it wouldn't cost much - yet people pay for good backups. I currently use both Slicehost and Linode and I'm considering that your service might be a nice alternative, but it's still hard to commit to such a young service with so few resources.

I know that Slicehost also lamented the lack of resources to spend on new machines. To an extent, you're not entering the market at a time that will accept a waitlist like how people waited for Slicehost. Well, it's late. Sorry for lacking eloquence in this post, but I'm half asleep. Might try to contact you through your site if I have other suggestions. I really, really hope you become a fourth entrant onto the scene to make sure prices stay nice. Good Luck!