I am currently using Natty_FreeNx_RubyRails (ami-6754970e) and it can be a little slow when browsing simple websites remotely. Before going to a 'small' instance, I would like to know if we can optimize this AMI further to make work a bit faster without any sluggishness with the micro instance.
If you refer to the Ubuntu system requirements for current versions, you will note that:
Micro Instances have 613 megabytes of RAM. Yes, Ubuntu Desktop will run on a machine with less than one gigabyte, but it is unlikely to perform well with less than the minimum required resources.
For "normal" performance, you need to use a system that meets the minimum requirements. This can be achieved either by reducing the amount of RAM required (i.e. using a CLI-only operating system that requires less RAM), or by increasing the amount of RAM available.
It seems like you're only using this for browsing. Why not just setup a proxy? Something like squid will run just fine on a micro instance, and you could use your regular desktop browser environment.
Just remember to limit squid to either user a username/password or limited to your IP (otherwise you'll run a free proxy for the entire internet).