devastating - not
You're forgetting about the cost of bandwidth, and the amount of time it takes to upload data to such a facility. My own facility which is within 17ms of Amazon's east coast facility still gets only a paltry 3-5MB/second of throughput on a gigabit link for a single stream. Tape is frequently measured in dozens or in the high end hundreds of megabytes a second of throughput(my own experience the source media is often the bottleneck rather than the tape). Most users probably will not have either a high speed link nor a low latency connection to the remote facility.
I wrote a blog post recently "Freakish performance on Site to Site VPN" where I was able to sustain 10MB/sec+ between a pair of Sonic wall VPNs on a 95ms link with a single stream (highly compressed file and encrypted with ssh) - myself I've never come across anywhere remotely that level of throughput on a VPN even with generic WAN optimization - SonicWall must be doing something really nice (regular internet speeds outside VPN were in the 700kB/s range). Now if I could get such performance to a cloud provider that would be nice, but unlike good cloud providers that allow you to have a hybrid of physical and virtual resources, Amazon doesn't play that game.
add to that tape can't be easily deleted when it is off site. That is, unless this amazon service is significantly different from S3, it is trivially easy to wipe out all of your backups with a couple commands. Storing tapes totally off line adds significantly more security and protection from that.
There was one facility I almost hosted my gear at a while ago that had a significant Amazon presence, and there was the option to have a direct gigabit link into their network from mine, in that case it would of been sub millisecond access and I can imagine it would make a lot more sense then.
For small data sets, it can work and there are already tons of providers out there that provide the service, most of them seem to advertise "unlimited" storage for a low yearly rate. These sorts of folks I think don't really care whether their data is stored in multiple data centers, it's a backup after all.