I think the real question is one of reliability. Which is the most likely to fail, your server, your host's, or something on the cloud? How many 9's do we need before we can evolve?
However, when your own servers fail, YOU can generally react faster than when someone elses server fails, and you rely on them to fix the outage and get you back online. This is especially true for SaaS startups. When Rackspace had their issues last year, and had to shutdown "some" servers because their datacenter was overheating, who do you think they shutdown? The startups with 2 or 3 servers, or the BigCo's with 2 or 3 full cabinets?