Shanti Braford details how his Ruby on Rails based website survived a 24 hour 550,000+ pageview digg attack. His post cleanly lays out all the juicy setup details, so there's not much I can add.
Hosting costs $370 a month for 1 web server, 1 database server, and sufficient bandwidth. The site is built on RoR, nginx, MySQL, and 7 mongrel servers. He thinks Rails 2.0 has improved performance and credits database avoidance and fragment caching for much of the performance boost.
Keep in mind his system is relatively static, but it's a very interesting and useful experience report.