Why is it that EC2 prices are dropping, but not VPS?

I think the simple answer would be economies of scale. As more and more customers sign up, they can drive their per-server costs down significantly. Their labor cost per customer would also decrease significantly. Meanwhile, your run-of-the-mill VPS provider is sweating decisions like "do I rent another rack" or "can I afford to hire another engineer"...

Could this be rephrased as, "Why is linode so damn expensive?" I don't know the answer to that question. Maybe Hurricane Electric is both unreliable and expensive.

I am paying about $18 per month for my linode instance. I am not going to migrate to $10 a month VPS for a saving of $8 per month. Linode knows this and is under no pressure to drop their prices.

It would be a totally different story of mu hosting needs costed me $1000s.

Hardware are getting cheaper & faster. The same is with Storage. Virtualization Tools & OS are mostly free. Worst if I compare the US VPS prices against those in Europe. E.g HostEurope or Leaseweb.

VPS just dun make any sense.

Conditions inside Amazon don't necessarily reflect the state of every business in the industry.

You have to be more specific about the VPS part of your question...