This procedure was performed on a 32bit OS (Micro instance) but may also work with little or no modification. Drop me a note if you get this to work on a 64bit without modification.

1. First you need to install pre-reqs

apt-get install gcc autoconf libevent-dev libxml2-dev  libssl-dev libpcre++-dev libbz2-dev libcurl4-openssl-dev libgmp3-dev libmysql++-dev libmcrypt-dev

2. Add the nginx user

useradd nginx

3. Compile and install PHP

mkdir /root/files && mkdir /etc/php.d && cd /root/files

wget http://sg2.php.net/get/php-5.3.4.tar.gz/from/sg.php.net/mirror

tar xvfz php-5.3.4.tar.gz && cd php-5.3.4

./configure --host=i686-ubuntu-linux-gnu --build=i686-ubuntu-linux-gnu --target=i386-ubuntu-linux --program-prefix= --prefix=/usr --exec-prefix=/usr --bindir=/usr/bin --sbindir=/usr/sbin --sysconfdir=/etc --datadir=/usr/share --includedir=/usr/include --libdir=/usr/lib --libexecdir=/usr/libexec --localstatedir=/var --sharedstatedir=/usr/com --mandir=/usr/share/man --infodir=/usr/share/info --cache-file=../config.cache --with-libdir=lib --with-config-file-path=/etc --with-config-file-scan-dir=/etc/php.d --disable-debug --disable-rpath --without-pear --without-gdbm --without-gd --without-pspell --without-unixODBC --without-sqlite --without-sqlite3 --with-libxml-dir=/usr --with-pic --with-bz2 --with-curl --with-exec-dir=/usr/bin --with-freetype-dir=/usr --with-png-dir=/usr --with-gettext --with-gmp --with-iconv --with-jpeg-dir=/usr --with-openssl --with-pcre-regex=/usr --with-zlib --with-layout=GNU --with-mysql --enable-gd-native-ttf --enable-exif --enable-magic-quotes --enable-sockets --enable-sysvsem --enable-sysvshm --enable-sysvmsg --enable-wddx --enable-ucd-snmp-hack --enable-calendar --enable-xml --enable-mbstring --enable-inline-optimization --disable-dom --disable-dba --disable-pdo --disable-xmlreader --disable-xmlwriter --disable-json --enable-fpm --with-fpm-user=nginx --with-fpm-group=nginx

make all install

cp /root/files/php-5.3.4/php.ini-production /etc/php.ini && mv /etc/php-fpm.conf.default /etc/php-fpm.conf && cp /root/files/php-5.3.4/sapi/fpm/init.d.php-fpm /etc/init.d/php-fpm

chmod +x /etc/init.d/php-fpm

4. PHP-FPM configuration

cat << END >> /etc/php-fpm.conf
pm.start_servers = 20
pm.min_spare_servers = 5
pm.max_spare_servers = 35
END

5. Compile and install Nginx

cd /root/files && wget http://nginx.org/download/nginx-0.8.53.tar.gz

tar xvfz nginx-0.8.53.tar.gz

mkdir /etc/nginx/ && mkdir /var/log/nginx/ && cd nginx-0.8.53

./configure --sbin-path=/usr/sbin --without-mail_pop3_module --without-mail_imap_module --without-mail_smtp_module --with-http_stub_status_module --conf-path=/etc/nginx/nginx.conf --error-log-path=/var/log/nginx/error.log --pid-path=/var/run/nginx.pid --user=nginx --group=nginx --http-log-path=/var/log/nginx/access.log 

make && make install

6. Fast-CGI Configuration

cat << END >> /etc/nginx/fastcgi_params
fastcgi_connect_timeout;
fastcgi_send_timeout 180;
fastcgi_read_timeout 180;
fastcgi_buffer_size 128k;
fastcgi_buffers 4 256k;
fastcgi_busy_buffers_size 256k;
fastcgi_temp_file_write_size 256k;
fastcgi_intercept_errors on;
END

7. Get Nginx init script from http://wiki.nginx.org/Nginx-init-ubuntu. Make the following changes:

DAEMON=/usr/sbin/nginx
NGINX_CONF_FILE="/etc/nginx/nginx.conf

8. Make Nginx and PHP-FPM run on start-up

update-rc.d nginx start 99 2 3 4 5 . stop 80 0 1 6 .
update-rc.d php-fpm start 99 2 3 4 5 . stop 80 0 1 6 .

9. Setup log rotate

cat << END > /etc/logrotate.d/nginx
/var/log/nginx/*.log {
weekly
missingok
rotate 52
compress
delaycompress
notifempty
create 640 root adm
sharedscripts
postrotate
[ ! -f /var/run/nginx.pid ] || kill -USR1 `cat /var/run/nginx.pid`
endscript
}
END

10. Installing additional modules. If you want to install additional PHP modules for your applications, it's easy. All you have to do is go to your PHP source directory, compile the module and copy the compiled module to the PHP modules directory which in this case is /usr/lib/20090626. It looks something like this:

cd /root/files/php-5.3.4/ext/json

phpize
./configure && make

cp modules/json.so /usr/lib/20090626/

/etc/init.d/php-fpm restart