Sometimes the problem isn't about performance, rather it's about fault-tolerance and redundancy. Granted, if all of these servers are located in the same data center, redundancy takes a hit. But all else being equal, having one's software running on multiple machines reduces down-time.
Also, live migration doesn't help you of the hardware dies. (I mean, if the host is using shared storage, it is easy to bring you up on a new host, but you still crashed. you can run a dedicated off shared storage, if that is all you want.) You can only 'live migrate' off a 'live' host. Now, if you wanna get really expensive, vmware (and xen, if you want to do some patching) has the capability to essentially 'live migrate every Xms' - the idea being that they never bring up the second host unless the primary host fails; but it's ready, and only Xms behind. (they do some things I don't understand to insure that I/O to the shared block device is in sync) This is very expensive, though, because not only do you need to pay for 2x the hardware, you need a vmware license. (or to run a non-standard xen)
A dedicated server with mirrored drives and ecc ram is likely going to be more reliable than a VPS.