so it looks like colo is the way to go, so long as its local?

We use the colo store.

Well, like anything, there are advantages and disadvantages to both. But colo is ultimately more cost efficient and does what we need. And, since we own the server, its easy to move it (the physical server) to a new host if the need arises. So, if you're looking to go dedicated and don't want to spend money to have it managed, then colo is a good choice. As to the local comment, I'm not sure what you mean, as things like reboots are handled by the company you colocate with.

Out of curiosity, why are you pruning??

I wonder how much RAM and other things I can buy with the $500.00 a month we will save going COLO. Not to mention the servers we are getting are considerably more powerful than anything offered in most leased dedicated server outfits. If you compare what it would cost to lease the equipment we need we would probably save $1k a month.

A lot of people don't start out with the money to purchase them (used to be us) but when you can swing it... You will save a lot of money and have better equipment. Heck, you can get nice servers relatively cheap now days. Check out www.apaqdigital.com . They are custom building what we need for a really great price.

The average COLO rate I see is about $99/mo for 1u-2u or min-tower. Where we run into problems is the 1/2 megabit setup they offer that utilizes an average system for bandwidth. We burst sometimes up to 5 megs out during peak and then barely trickle at late hours, but none of colo's using this could tell me that I won't be billed for more because I averaged more than their 512 for a sustained period. I really would like to have my servers locally but I think I'm going to send them to dedicatednow since I can get 2000 gigs a month and it does not matter if I have certain periods that are really high.

I'm guessing you are talking about 95th percentile billing. The easiest way to see what you would fall into is install something like MRTG or Cacti. Graph your local interfaces and see what your average comes out to be under 95th billing. To do this on MRTG you will have to patch it.
http://www.seanadams.com/95/

Thanks for the info, Prohacker. Yup.. The good ole percentile billing. Will get that added and see where I am.

Approx. 800 €/month.
Obviously co-location would be cheaper, but to buy the hardware would have costed around 10.000 €, we would have to deal with defective hardware our selves, have to keep system software secure, etc.
As it is now, the machines are managed and so we don't have to worry about that.