I worked on a large DB intensive eCommerce site, with a large number of writes and un-cachable data. While it worked great locally, trying to point a cluster at the DB in the backup data center (50 ms away on a dedicated backbone line) absolutely killed performance.
Also, for another eCommerce site, the local dev instance on my laptop boots in about ~ 1 minute when running against a local database. It takes about ~10 minutes when running against the corporate dev db over the VPN connection (~50ms added latency).
However, for an application with more cacheable data, and less queries per second, it would matter less.
If you have a lot of small queries latency might kill you, and if you have large result sets throughput might kill you. (Also, I don't know how safe the mysql connection is outside a firewalled LAN. Maybe that's not an issue.)