In regards to your first question:
The protocols you use will matter when leaving the VPN and going to the servers that you are trying to contact, so anyone sniffing traffic to those servers will be able to see what's being sent.
In regards to your second question:
If another person using EC2/Digital Ocean were able to sniff your traffic through that provider's network, it would be a MAJOR security flaw on the part of the provider, and I sincerely doubt that it would happen (unless you piss off the government and they get a warrant to force the provider to do it, but if you do that, they could also probably force the provider to identify you).
The main comment I have, though, is that you might not want to set up a VPN yourself, for multiple reasons:
- You're leaving a paper trail of who owns the VPN server with the cloud provider, who (as I mentioned) will be perfectly happy to identify you to the government. If you don't care about the government knowing what you're doing, you should be fine.
The companies that provide VPN services will be able to host more than one VPN client on a single box, which provides:
- More protection (as an attacker will not be able to distinguish traffic that is yours from traffic that belongs to other clients)
- Lower costs, as they only require one instance for multiple VPN clients
- They're probably more optimized for what they're doing than something you set up will be, and they'll hopefully be less likely to make mistakes like allowing weak encryptions to be used.