Having said that, if you choose to run a low cost hosting service, you should know that your customers are going to be greedy entitled bitches, and you should deal with that fact in a professional matter. Otherwise, just get into some other line of business.
If you commit to provide a service, whether you're charging $1 or $100k per month, there are some minimum standards of behavior you should hold yourself to. This isn't "you get what you pay for" because the host went down. Maliciously deleting backups that you're supposedly responsible for, over a twitter slapfight, is unethical. No matter what.
Forget about how much you think it costs to host your backups. Think about how much you backups mean to you. What would happen if you didn't have access to your backups?
But what they did was close this guy's account and delete his backups without warning. It seems they then did the same to his friend for shooting his mouth off on twitter. That's beyond "handled poorly", that's unprofessional and unethical.