Solution 1:

The price comparison is not quite right: S3 charges are $0.14 per GB USED, whereas EBS charges are $0.10 per GB PROVISIONED (the size of your EBS volume), whether you use it or not. As a result, S3 may or may not be cheaper than EBS.

Solution 2:

I'm currently using S3 for a project and it's working extremely well.

EBS means you need to manage a volume + machines to attach it to. You need to add space as it's filling up and perform backups (not saying you shouldn't back up your S3 data, just that it's not as critical).

It also makes it harder to scale: when you want to add additional machines, you either need to pull off the images to a separate machine or clone the images across all. This also means you're adding a bottleneck: you'll have to manage your own upload process that will either upload to all machines or have a single machine managing it.

I recommend S3: it's set and forget. Any number of machines can be performing uploads in parallel and you don't really need to notify other machines about the upload.

In addition, you can use Amazon Cloudfront as a cheap CDN in front of the images instead of directly downloading from S3.