Ram,
You save the startup package locally, and included it when you launch an instance by clicking on that button in Elastic Fox.
Yes, you can apply a patch using a startup package. It if puts the files size over the limit (16KB I think) you have to use download tag in the startup.xml file:
<Download>
<URL>http://[web-server]/jarfiles.zip</URL>
<Destination>/usr/local/WowzaMediaServer/lib/jarfiles.zip</Destination>
<Action>UNZIP</Action>
</Download>
If you replace the /conf/Server.xml file using a startup package, there are two EC2 specific ServerListeners that you should be sure to include.
Richard