The whole point of memcached is that it is right next to your web server, accessible through loop-back devices and such.
To stick it on the other side of a wire is defeating the purpose, that will in a great many cases increase the time of the request beyond what it would have taken to re-create the original request.
Not to rain on your parade, but I think this is less than useful for production.
You should do a benchmark of some simple page that uses no caching, memcached locally and memcached remote but in the same datacenter, that would be interesting information.
We don't use Linode, but we do use memcached to store 'partials', and for now I'm skeptical about running that memcached on the other side of a wire, latency tends to fluctuate quite a bit in a busy DC, so you may have to run your test over an extended period of time to get good data.
It helps if your machine is equipped with two ethernet interfaces, one for 'local' traffic and one that is facing the outside world.
I'm not sure how Linode does it, but I've worked on dedicated machines that have separate, internal routes. (Slicehost VPSes have this option available -- unmetered -- too.)
When compared to heavy processing on large database queries, memcached -- even with a few extra ms of latency -- can still be a major performance win.
Although this largely depends on the applications you're making. I've been working with GIS applications lately, where a large distributed cache (most memcached clients automatically support sharding) is about the best you can do without a large hardware budget.
I don't think thats really true. In my experience its far more common to run memcached on a separate server (or servers, it is clusterable) than it is to run it locally, at least for anything serious enough to require separate web and database servers.
To stick it on the other side of a wire is defeating the purpose, that will in a great many cases increase the time of the request beyond what it would have taken to re-create the original request.
Not to rain on your parade, but I think this is less than useful for production.