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Why would you run memcache outside of your VLAN though, doesn't that obviate most of the point (speed) by adding so much network latency?

Yeah, it adds latency, so it won't solve every problem. It does scale a lot better than something that ends up thrashing the disk, though.

that's what i thought, however amazon's ec2 structure doesn't seem to be the most impressive for memcache throughput...