If you outsource your hosting, do not go with cheap shared hosting (ie, 10/mo for Unlimited Bandwidth and storage space!) -- in these setups, you are sharing resources with hundreds/thousands of other sites. A lot of traffic/a security breach on one of these sites means trouble for your site.
A Virtual Private Server, or a VPS, provides a good middle ground between shared hosting and colocation. VPS setups can start at 30/month, and run to 200/mo or more, but you get the stability of a managed server at a fraction of the cost.
A managed dedicated server provides another middle ground between shared hosting and buying a box and hosting it in-house or colocating. With a managed dedicated plan, the hosting company handles security patches/upgrades/connectivity, and you essentially rent the box.
You can also try some newer services using cloud-based technology. Slicehost has an excellent reputation.
As far as things to avoid:
1. GoDaddy: they are terrible. Period. I would sooner trust my infrastructure to a Middle School computer science class than the "gurus" of GoDaddy.
2. Affiliated resellers. Folks that have affiliate arrangements with hosting providers make money when they steer you to a web host. This impairs their credibility on making recommendations.
Cheers,
Bill
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