Not a whole lot of replies here yet. Hopefully this will help.

We co-locate. We have 8 load-balanced servers in a full-rack and a 100mbps pipe with level3. We use Internap for route optimization. We have 2 part-time sys admins who do a pretty good job at keeping us up and fast.

We colocated because of two primary reasons. The first is that our system is pretty propriatary. We keep our webservers in a load-balanced environment and use storage arrays for our content. We have a seperate database server and all traffic to the DB occurs using the second nic cards (internal) on the boxes. We run our own DNS and Mail servers. Mosts hosts don't want to mess with that kind of specilization. The second reason is that it is more economical to cut out the middle-man and buy in bulk. Granted, we do spend a lot of money on hosting each month, but we have Tier 1 Bandwidth with path optimization and sys admins who are intimately familiar with our setup.