I would say another factor to consider would be the time which you are going to use your equipment. Personally, as technology changes, I feel that the dedicated route is better -- you'll be able to upgrade servers every year or two. If you have a lot of money invested in your colocated server, you have a lesser chance of upgrading to a more powerful system, unless you fancy replacing motherboards, processors, et cetera. I like the dedicated route because when a server becomes out-dated (like a P4 2.4 GHz I had awhile back), you can simply order a more powerful server and cancel the old one. I like the flexibility and the security that (in my opinion) dedicated servers provide. If you do decide to go the dedicated route, make sure you find a reliable provider -- you don't want to be at a place like Managed.com or the (former) TomSyer.