1) Your comment has an answer.
2) They can detect that the computer is running near 100%, but I guess there are a lot of legit users that use near the 100%.
3) I'm not sure of the privacy conditions, but most people would not like that Amazon peeps into their VM. Perhaps you are simulating a new secret drug medicine, or you are enhancing a porn video, or you are encrypting/decrypting your users post/photos, or you are deep mining health information to send medical spam/advertising/advice. These don't use a massive sha calculation, but it may be difficult to notice the difference automatically.
4) The more similar real word application I can think now is doing a massive git rebase (rebase all the Linux kernel from start, or all github repositories). IIRC git uses sha-1 and bitcoin uses sha-256, so this is not an exact application.
5) They would have to test the use of instance to mine scrypt based coins, like Litecoin. And other mining schemes ...