Colocated Dedicated Server - Virtualize & Share

Does anyone have any experience with dedicated server colocation? I had a novel idea today that I could build a nice 1U quad core server, load VMWware ESX on it, and split the machine into virtual machines. The idea being that I could use one or two myself, and rent or share the others with friends and colleagues. Is this something that is possible, plausible, or has been done before? I've run machines in Rackspace and on my corporate network but I always believed the expense to be too high for an individual. Locally, however, I am getting quotes of $60-$100 per month for colocation of a 1U machine & bandwidth. This sounds a lot more reasonable than I had initially projected.

I'm open to any and all thoughts on this, and look forward to hearing some good stories. :)

As for why I'm looking at a dedicated machine, it'd be for web hosting, game servers, and a small business. A friend of mine has a start up of sorts that could use some more horsepower. They've been renting a shared dedicated account at a web hosting provider. I am almost certain they're paying at least $30-$50 a month and are unable to control the installed packages, let alone the OS level settings.