Amazon developers use similar devboxes. I think it is mostly so that developers can use a production-like Linux environment with integrated Amazon dev tooling. You're not required to use a devbox, but it can be easier and more convenient than running stuff on your laptop.

Seems like a compliance thing? I too run my LLMs inside some sort of containment and does "manual" development inside the same environment, but wouldn't make sense to have that containment remotely, so I'm guessing that's because they need to have some sort of strict control over it?

It's not uncommon. It's more common at large companies. For example, Google calls theirs "Clients in the Cloud".

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