The answer to your question is it depends. <grin> Maybe if I tell you what we have going on as way of example you can draw your own conclusions.
We develop software as a service applications for the non-profit sector using DNN and ListX (third party DNN development application available at Snowcovered) as the tool for creating the custom application. We have two servers, the IIS server is a Dual 1.60 GHz Intel Xeon 5110 processor machine with 4 gigs of RAM, Windows server 2003, and two SATA 68 gig drives in a RAID ARRAY (mirror). We have a single domain and we install a unique instance of DNN for each client like this: https://domainname/client1, https://domainname/client2, etc. Our SQL database server is a Quad 1.86 GHz Intel Xeon E5320 with 8 gigs of RAM, Windows server 2003, and three SATA drives in a Raid 5 array for a total of 270 gigs.
We create a separate sql database for each application / client to maintain a safe secure environment. For example say for client1 we will install dnn with the name dnnclient1, and we will create a dnnclient1 database and a productnameclient1 database for our software to use. We also set up unique user names for each database so that a single sql user name does not have access to all databases. So a single user name to access all client1s dnn and application database, and a unique user name and password for client2, etc.
Even though we have hundreds of users doing hundreds of transactions a day in each client database the DNN databases are by far the largest of the two.
From a hardware configuration standpoint and maximum sql performance you will want to set up mssql server to utilize it's own physical hard disk for the databases and a separate physical disk for the log files and backups. I should say that we didn't set up these separate physical disks in this fashion and we do not yet experience any IO (Input Output) bottlenecks, but I feel that if you do set these separate physical disks up then the performance will not drop off as quickly when things scale up. Also the Database server is set on a private IP address and it is not facing the public.
We take a little performance hit by using a raid configuration on the hard disk drives, but the added good feeling we get by the extra protection is worth it to us.
So I guess the answer to your question depends a lot on where you want the trade off to be. A single server with a single parent portal with a bunch of sub portals will make for a much larger dnn database size, where a bunch of dnn installations makes for a additional management concerns. SQL server likes memory and high speed disk drives.
The cool part is that you can do things both ways, it really depends on volume of traffic, how much interaction with databases will be required, and the level of security that is needed. Lastly you should consider the likelihood of scaling up to many more portals / users. At some point a single dnn/database/server install versus a multi-dnn/sql/server install will start to show performance degradation at a faster rate than the multi-dnn install, in my opinion.