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.