In the cheaper VPS I would recommend Webbynode http://webbynode.com/ , you can go bigger but the low end is pretty good to start off with form most small business web-apps. And it's a VPS so you can install whatever you want -- they also have pre-build recipes for Rails 3 and other platforms which takes some of the setup pain away. I would also second Linode for VPS as well. Heroku is good if you only ever get one request at a time for your app, which in most cases is good enough, but still very minimal -- and unless you are (and maybe you are) a big pocketed startup that doesn't care about burning money, scaling up on Heroku is probably one of the easiest things.
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