If you sell your products and services to a geographically specific audience it matters where your website is hosted. For example, I sell products primarily to a UK audience. Therefore I host my website in the UK, with a UK based hosting company.
Now this is not because I'm patriotic (;-) ), it's because experience has shown me that if I host my website in the UK it will show up higher in google.co.uk than if I host in the US (for example).
I guess Google looks at where you are hosted to ascertain where your search results are best served.
In my case, if I hosted my site in the US I would get lost in a sea of US competitors on google.com and have lower rankings in google.co.uk.
For me this means A LOT of lost revenue! How would if affect your bottom line?
You may think that most people use google.com anyway, but if you're not in the US have you noticed that most browsers will redirect you to the search engine specific to the country you are in?
e.g. Whenever I enter google.com I automatically get redirected to google.co.uk. And so do most of my customers!
To summarise:
If you want to rank well in your location specific search engine, be it google, msn or yahoo make sure you host your website in that location.
