How to downgrade a AWS EC2?

I think the best way is:

1. Snapshot the volumes from the current instance.
2. Create the new small type instance
3. Use the snapshot(s) to create a replica of your existing volumes.
4. Attach the new volume(s) created to small instance.
5. Test it and switch ElasticIP to the new instance if everything is working ok.

I don't know how it worked back then in December 2010. But now it's very simple, maybe Amazon simplified it recently.

Steps

1. Stop the instance
2. Click the Check box next to the instance
3. Click Actions button
4. Choose "Change Instance Type"

That's It!