I've run my personal site (http://www.guydavis.ca) for years over a server at home via a cable modem. However, my ISP will completely clamp down on bandwidth for any real traffic.
For my own "just for fun" project (http://www.babynamemap.com), I wanted to be able to handle more than one visitor at time. :) I'm hosting the RoR app on the cheapest Slicehost VPS for $20/month.
So, if you don't care about many concurrent visitors and decent uptime, then save $20 and host from your home. However, if you actually want the general public to come visit, then get yourself some cheap hosting.
Definitely aston. I love Rails and am using it for my personal project (http://www.babynamemap.com/). However, every time I've been given the opportunity to "rewrite" some big feature/app/module, the 2nd attempt is hugely improved. It's always tighter, even when rewriting in the same language.
Simply having a better understanding of the problem domain and total solution makes the 2nd pass a better implementation. I'd guess the bulk of the benefits Outside.in experienced are due that "rewrite effect". Rails no doubt contributed though since it is a nice framework.
Disclaimer: She's my cousin. :)