I'd be interested in experimenting with the Pi for cheap webhosting.
I envision a "dedicated server" web hosting package: System on the local SD card, data on a SAN through iSCSI. Probably LAMP enabled, or asp.net/mono (I hear mono on the Pi does suck a bit, though).
As of fitting 20 in a 1U rack case with PSU and a small network switch.. I have my doubts. The built-in network switch would need at least 21 ports to be useful. Not exactly what I'd call a "small switch". Also consider the ethernet cabling for 20 ports. Then the PSU and cabling for power distribution. Plus, due to the packing density, some cooling fans.
All stuffed into a 1U rack case? No way
What would really be useful to the task would be kind of a "blade" model Pi, with all the neccessary signal headers united on a common backplane connector; Together with a backplane that has it's own gigabit ethernet switching chip (broadcom makes those, too) and one or two power supply units. Perfect for enabling low cost (especially in terms of energy consumption) dedicated server farms.
Probably could paint the whole thing green by running it off a photovoltaic installation on your roof, too
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