Most projects I've worked on have been games where the studio was split into teams of about 6-10 people with one dedicated in-house QA member for some but not all teams, a few in-house QA workers not assigned to a specific team, plus a much larger external QA team (from the parent company/ publisher). That has worked great.
I've also been on projects with only external QA. It works, but the lack of internal QA has been a frequent annoyance.