Not saying my scale is the the same at all - but the fact they can't do something so simple that I can do it as a single individual is embarrassing at best.
Simple solutions to this do scale - Linode and DigitalOcean don't have such issues for example - and while they're not Amazon scale, they are quite large and I'd say they prove the concept.
EBS data is backed up in multiple redundant ways (using erasure encoding I think).
Local storage is not intended for permanent storage, and is more use at your own risk. That's also why most of the new EC2 instances don't even support local storage.
That's the cost of a new 500GB SSD per month! For the cost of three months' EBS storage and a couple of hours you could setup your own RAID array with a spare for backups and possibly get better uptimes than Amazon :P
It's not just a RAID that can fail. And everyone who uses AWS should expect failures. You should build your infrastructure to handle such failures well.