Chatterbox, when the time to upgrade comes, don't forget that it's possible to get a fully (or partially) managed dedicated server. If you don't care to learn, or aren't able to learn, all the server admin skills needed to manage a server (or if you just don't have the time), a managed dedicated might be the way to go. It costs more than a dedicated server; and for some people, this added cost isn't worth it, they have the skills and would rather manage it themselves; but in my mind, it's a bit like taking the car to a mechanic versus trying to diagnose and / or tune it myself: Can you best spend your time learning server admin skills and then taking care of the server yourself? Or does it cost you less (in terms of your time and money) to hire that task out?
You may also look for a provider that offers both managed and unmanaged dedicated servers, and start out with a managed...then "upgrade" to unmanaged when you feel that you've got the skills and knowledge to handle your own server administration.
Another angle of colocation vs. dedicated is that you can take the tax writeoff for equipment depreciation. You can't do that with a leased dedicated server, because you don't own the equipment - your provider does. On the other hand, with a leased dedicated server, the provider is often responsible for replacing or upgrading the hardware. With colocation, that's your responsibility (unless your colo provider has a service whereby you pay a small additional amount and they watch for when hardware might need replacing. I'm not too sure on that, though - don't know if that's a service colo providers offer.)
