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Colocate entire infrastructure?

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We are currently running on HP Proliant G4 servers with Server 2003 on bare metal. We are just about to make a start on our infrastructure upgrade/virtualisation project with some new servers - but the powers above pulled the plug for us. They want us to look into moving our servers to third party data centers - co-location I guess. 

Sounds like a pretty crazy idea to me. won't we need a lot of low latency bandwidth? This means having our domain controllers and file/print servers at remote data center? How do we pull down images via WDS from remote sites? What about WSUS? They also require us to do tape backups that is located at off-site locations. How can we do that? 

Do you guys have any experience with this sort of setup? What are the advantages? Or can you help me pointing out more obvious reason that this is a bad idea? 


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