I would go RDS if you want "Failover Clustering", while it is not true failover clustering, RDS allows the option for having the server in multiple AZ within a region so if the AZ dies it moves to another. EC2 you would have to put something like mirroring in place, so you would need 2 EC2 hosts.
Backups you will need to do yourself and depending on what your strategy is, you will need S3 storage or pull it to your office to back it up as that is something which Amazon doesnt do.
Jeremiah Peschka did a good article on Brent Ozar's site on EC2, might be worth a read