What would you recomment for a freelancer developer looking to host his mid-size projects?
And yes, you should absolutely split up dev/prod servers (while keeping them as similar as possible).
I've found that using the cloud forces me to be more responsible about having scripted operations procedures - which is great when clients come back after 5 months wanting minor changes - I can spin up a prod/dev server for their project with almost no overhead, and it wasn't cluttering up a colo server somewhere.
Nonetheless, if performance/cost ratio is a definite concern, colo is definitely the right decision.
I'd recommend building your own servers and colocating them. You can get a ~50 ECU, 32GB ECC RAM, SSD, etc for about 1k. You can colo by the RU in most major cities, which typically runs around $99 per month.
If you want any help, send me a line and I can walk you through it all. I not only this for my own company (~60 RUs of blades/traditional), but I also consult fairly often doing infrastructure for companies wanting to cut costs over things like AWS by 10x to 100x (yes, 100x happens sadly for them prior).