Moving site to amazon EC2 - better to have 1 large instance or 2 medium instances?
If you expect your traffic to increase you will have to split your web and database layers at some point. So probably would be better to get separate instances for web and database servers now. Then you can start looking into making your web app scalable (so you could add additional web servers under a load balancer to handle traffic peaks) and tuning your database for better availability and performance.