Hmm, I read on
http://www.sql-server-performance.com/asp_sql_server.asp that...
If your web server, and its backend SQL Server database server, are not overwhelmed with work, consider locating both of them on the same physical server. This will eliminate the overhead of sending network communications between separate web and SQL Servers, providing an incremental boost to performance.
But if your web server and SQL Server running together max out a single server, then separate them. Although the network overhead comes back to haunt you when you do this, running them on two servers makes your application much more scalable for busy applications. [6.5, 7.0, 2000]
Im considering re-formatting the server and only putting the sql server on it and finding another box for the iis server.
Eric