Turns out this is an iTerm/iTerm2 issue. For some reason the default for the option key behavior, which is to act as 'meta', worked well for me on any other SSH session, but on the EC2 servers it produced the noted behavior.
Once I realized this is an iTerm2 used it FAQ to solve this: Under Preferences->Profiles select the relevant profile, and switch to the 'Keyboard' tab. At the bottom set both option keys to send escape codes (act as +Esc). This solved my issue with no regressions on other SSH sessions.
Thanks Dennis & Jake!