What is the better option here? Implement a SIGTERM based process that allows the user to block the patch for a critical, possibly zero-day CVE for xx hours, remaining in a vulnerable state the entire time? Or implement a system that just patches the underlying host without interrupting the workloads on the box?
You aren't wrong, what you described is a possibility, but it is not the best possibility.
If there's not a CVE, AWS can significantly manage the lifecycle of their machines, and have ~5% of all of their machines "unschedulable" at any one time, waiting for existing processes to complete so that they may use an orderly restart before doing a boot+nuke. A SLA of "Tasks may never run longer than X days"(x=10-30) allows them to perform orderly restarts.
These assumptions you're making are dangerous because the variety of workloads across tenants is extreme. If you're going to do something like "kill compute no matter what" then you better have a good reason for it.
The process on aws side would then be : send SIGTERM to all workloads. wait for [configurable] amount of time (maxed at xx hours) or until all workloads have exited (whichever comes first). Shutdown the node. Update the node. Start the node. Restart the workloads.