How can it be a cash cow when there is no direct revenue from it? Rails is fantastic advertising for their company but it's their products that make them money. Rails just brings awareness.
Learn by doing. One way that I do is try to implement existing sites. This lets you concentrate on building the product instead of designing how it will look and feel. For example. Building this site in RoR would be a great exercise as the scope is large enough to include many features but not so large as to be impossible.
I disagree with your findings. Sure it's cheap, but hosting companies tend to oversell this virtual boxes to people and performance is not the same, especially when it comes to disk I/O (any kind of I/O) and handling sudden CPU usage spikes.
$1,200-$1,600 for a server is not expensive. If you are trying to start up a company and you're an engineer yourself, that money is what? Your half week salary? Or we're talking about running things from a dorm room here?
You make very good point about reliability though.