Fortunately, difficulty will drop accordingly over time. It's too bad it doesn't rise or fall with a larger increment (faster rate) per block though. It's just a bit of a waiting game at this point for difficulty to become more reasonable. It's dropping quickly though, I see it's down to about 4.4 now.
I think at a minimum, pool operators need to stay on top of Nfactor++ events and adjust work size / difficulty to keep things working smoothly and keep the average time to solve a share below the average time between blocks. Otherwise everyone solo mining (like me) actually beat out pools with poorly adjusted work size. I still leave a handful of dual Xeon servers mining for testing purposes and their block solving rate still seems to be tracking inversely proportional with hash rate and difficulty. At this point, N is still way lower than Litecoin always had.
An Amazon micro instance mining on a poorly adjusted pool would indeed be a losing battle at this point, I'd think. That's basically just a small shared fraction of a single Xeon core!