impo, having a dedicated physical (not 2 vps running on the same physical box) database server is always preferable (because the database will run with as much of the live data cached in memory {disc i/o is the performance killer} as possible given the available ram) as long as you have an excellent or dedicated (ie private) network connection between the application server and the dbms server. many LAMP systems run the database and application on the same server due to costs, and because doing so permits you to not open the database to external connections (for security concerns).