I was an Amazon EC2 Specialist SA in a prior role, so I know a little about this.

If EC2 were like your home server, you might be right. And an EC2 bare metal instance is the closest approximation to that. On bare metal, you've always been free to run your own VMs, and we had some customers who rolled their own nested VM implementations on it.

But EC2 is not like your home server. There are some nontrivial considerations and requirements to offer nested virtualization at cloud scale:

1. Ensuring virtualized networking (VPC) works with nested VMs as well as with the primary VM

2. Making sure the environment (VMM etc) is sufficiently hardened to meet AWS's incredibly stringent security standards so that nesting doesn't pose unintended threats or weaken EC2's isolation properties. EC2 doesn't use libvirt or an off-the-shelf KVM. See https://youtu.be/cD1mNQ9YbeA?si=hcaZaV2W_hcEIn9L&t=1095 and https://youtu.be/hqqKi3E-oG8?si=liAfollyupYicc_L&t=501

3. Ensuring performance and reliability meets customer standards

4. Building a rock-solid control plane around it all

It's not a trivial matter of flipping a bit.