Traffic in a AWS virtual private cloud

Solution 1:

Traffic within your VPC can be considered quite private. Yes, a relatively small number of AWS engineers could theoretically view the traffic. If an engineer did that without need, though (support ticket, etc.), they would lose their job.

The traffic is most definitely not viewable by any other EC2 customers.

Like @ceejayoz said above, if you are worried about data privacy, then sure, set up IPSec in transport mode between your instances.

If you're interested in the nuts and bolts of how VPC works, including the security mechanisms they have in place, see A Day in the Life of a Billion Packets, which was my favorite of all the sessions I attended at the AWS re:Invent conference last fall.