I don't think you'll benefit much from colocation unless you own multiple servers yourself and can go to your datacenter often.
I respectfully disagree. In a lot of cases you can get better bang for your buck out of colocation in the long run. Obviously this varies depending on factors such as what kind of server you're looking for, what the pricing is, etc.
Just for some real world examples using numbers I can speak to....
Say you take a dedicated server, Intel Dual-core 3.4Ghz / 2GB RAM / 1 TB SATA hard drive - $139/mo. You keep the server for 12 months, so at the end of a year you have paid $1,668.
If you know where to look, you can put together a system like that pretty reasonably. So we'll say it costs $300 to purchase the system (we're actually getting them a little cheaper, but YMMV). Colo on that server will run $69/mo (power, space and bandwidth). Again, we'll say you keep the server running for 12 months. This means that at the end of the year you've paid $1,128.
Given the above numbers, you save $540 by going colocated over the course of a year.
Some folks are uncomfortable with having equipment that they own in a remote location. However, most commercial datacenters are able to provide really good remote hands and technical assistance. For instance, we provide our customers with free remote hands and free use of IP-KVM so you could even reload an OS on the box from the other side of the globe if you wanted. Although we are in Dallas, we have customers spread across 5 continents, so it's kind of difficult for some of them to make frequent trips! :0
So it all boils down to what works best for your particular case. And Steve has already put together some very good points as well. When we get calls like this we typically spend some time talking it through with the customer. The customer usually comes to a good conclusion on their own after getting some information. I hope that the info helps in your process!
I spend a lot of time researching different topics that apply to our operations and to business in general. Much of this is gleamed from different forums, books and articles (and our own internal operations). I just put my own spin on it, based on my experience in the industry. Hopefully, what we contribute to these forums will help others to avoid mistakes - and possibly even help them succeed in their businesses.