I don't think reasonable people expect hypervisors to be bulletproof. Security is a sliding scale though, and for many purposes the security level offered by a responsible cloud provider is good enough for what they're hosting there. If my bank hosted their critical system in AWS, I'd freak out. If Pandora hosts systems there to stream music to me? I could care less. If Pandora puts their billing system there that has my credit card number? Ok, I start to care a little more, but the risk is manageable if they're being careful about the design, and ultimately if someone rips their whole CC database, my CC company or I will notice the fraud activity quickly and issue me a new card. Life goes on.
Why do companies want to use virtualized infrastructure in the first place? Because it offloads work that's not directly relevant to their business. Let me quote directly from Bruce Perens' recent Ask Slashdot responses:
There is no point in having your own programmers write anything that is not a customer-visible business differentiator for your company if you can get it from the Open Source community. A “business differentiator” in this case means something that makes your company look better than a competitor, to the customer directly. Too much “glue code”, and “infrastructure” is written by organizations that have no real need to do so if they would adopt Open Source. The message that is driving them to do so is the huge stack of cash being made by the companies that do use us.
He was talking about it making sense for companies to build on top of OSS lower-layers. The same applies to the cloud infrastructure stuff. For most businesses, infrastructure is not a differentiator anymore. Why have company employees concerned with managing network switches, racks, cooling systems, datacenter fire protection codes and systems, insurance, servers? Or calling vendors and leading them in the building to replace failed drives and RAM modules, or even giving a crap about hardware at all?
If my company's purpose in life is to deliver, e.g., some social iPhone app and a backend network service that supports it, I have no differentiating interest in that level of infrastructure. I still need an IT department, but it can be a small one focused on using that cloud infrastructure correctly (e.g. security, configuration management, etc). When you can shift off that whole layer of complexity to a large-scale specialist, you've reduced the total complexity your company has to manage directly. Focus on the areas that matter, not the common ground. Did your company design, engineer, and build its own kitchen appliances for the company breakroom? Didn't think so...