We reserved a Small machine but after a few weeks decided it wasn't powerful enough, so today I cloned that server and re-created it as a Medium machine.  The Small machine is now powered off.

As I understand it, we will need to reserve the Medium machine since the new machine is of a different type than the one we previously reserved.  And unless I make use of that Small machine in some other way, the money we initially paid to reserve it would go down the drain.  Right?

Here's the documentation.  I think the key phrase here being "in the reserved size" and region.  We launched our Medium machine in the same region, it's just of a different size.

Through the Hub you reserve a server instance of a specific size in a specific region. Amazon bills you a non-refundable one-time fee. The Hub applies the discounted hourly rate immediately to any matching server. You'll see this reflected in the server dashboard.