We reckon about £2k to buy the server, plus whatever the database is (I think I have seen from error messages that it's MySQL, which is cheap, but a grown-up DBMS on a 2 processor system, it would probably be another £2.5k)
Co-located hosting is definitely the way to go. We reckon that you will get 1/4 of a rack (usually the minimum) for £10-12k per annum with the service and bandwidth required. This would give you a 2Mb "average" but the possibility of "bursting" much higher, provided that it didn't happen too often.
We can pass on some quotes we got last year from a number of co-located people (we ended up with UUNet) if that helps.
Will