You make some very good points. (I have forwarded your comments about Terms of Service and Insurance to my lawyer so something can be added into my contract.)

And yet we still offer hosting. How we address some of the issues you mention: I bill only once a year so I reduce the issue of chasing small invoices. I contractually limit the number of support requests related to hosting (I offer two plans, priced accordingly, one with 12 free calls and one with unlimited calls. I needed these support plans regardless of whether I was reselling hosting or not, my clients were expecting a high level of service, they expected us to manage their accounts with a range of ISPs. To reduce the variability, I rent space in the cloud at RackSpace and resell to clients. )