I have successfully installed scipy in the default python compiler on an amazon ec2 micro instance (Ubuntu 13.04). However i am not able to install scipy<
Yes, 512MB is not enough for compiling that C++ file.
Your best option is to build Scipy as a binary package (bdist, or eggs, or, more modern wheels) e.g. via python setupegg.py bdist_egg on a different machine with compatible environment. For instance, use a similar Linux version to the EC2 instance in a virtual machine.
In general, it's good to remember that when pip installs packages, it compiles source files. If the package is not tiny, this is inefficient and it's better to use binary packages. The wheel package format is supposed to play well together with pip.