"Note: If you're going to disagree with one of my assumptions it's this last one. I am perfectly aware that a uniform duty cycle is unheard of when it comes to web applications..."

Well there you go. I know a Startup paying a good $12k a month on the Amazon Cloud and their multiple for daily peak hour to valley hour is greater than 10. So given your assumption backed up by anecdotal evidence (of which I have my own) sure, collocating is cheaper.