I'm not sure of the current price of rack servers, but my impression is that co-location (renting rack-space at hosting facilities) in general is going out of fashion these days, because it's simply easier, cheaper, and less hassle for hosts to provide virtual servers, and similarly users don't have to worry about upgrading, hardware failure, and so on.
(And that's not even getting into all the issues surrounding visiting the data centres to install hardware.)
At the moment, we are actually on the lowest Linode 512 plan, and it seems to be coping absolutely fine.
The place is not exactly at its busiest presently - and being on a crappy 3G connection it's hard to tell - but it's certainly not worse than before the move, and server load is currently considered 'idle', so whilst it's still early days, I don't think we have anything to worry about.
EDITED: 29 Sep 2010 22:07 by BOUGHTONP