This is a difficult issue, with a number of factors that make it just confusing enough to cause some pretty major consternation. Ultimately, though, it comes down to what you want to accomplish from your internet presence as not just a photographer, but a person running a business. It's different for everyone, but when I sat down to figure it out for myself, I had some specific requirements. I wanted more complete control over not just the content and structure of the site, but service delivery as well - basically, client flow from browsing to ordering to order fulfillment. While hosting sites like Smugmug et al are terrific, and great value for the money, using their value-added services such as the shopping cart and order-fullfillment can be problematic for an Australian-based photographer, leaving you with the irksome issue of having to find some other way to do these things.
Now, I knew from the start that I wanted to do my own printing. I was willing to make the investment in a high-end, dedicated photograph printer so that I could be absolutely sure that the product my clients recieved was one I had made myself and was satisfied with. I also knew that I wanted to focus more on photography and printing than I did the troublesome and mundane middle area of order taking and bank transactions. Here I had to begin to make compromises - PayPal offers some terrific options for vendors (not just eBay vendors, either) that take this part of the transaction and make it dead easy for everyone. Their fees are a wee bit high, but when you factor in the cost of your time manually putting through credit card transactions as well as the bank fees for a vendor account, this becomes an economical alternative. Their proprietary shopping cart system is very bare-bones however, and though I did experiment with it when I first set up my site, I realised quick off that it simply would not suit my needs. After a little searching I found a very versatile gallery/shopping cart system made specifically for photographers, and snapped it up. For me, another worthwhile investment, as it solved not only the problem of providing a solid client flow through the transaction process, but came with a very impressive gallery database system right out of the box that didn't require a computer science degree to setup.
PossumCorner (Love that nick!) brings up the biggest, and most consternating issue of all and makes a great argument for a photograph hosting service - the amount of space you get with a web hosting company, and the number of images you can have in that space. This is a brick wall I ran into very quickly when all I had was the most basic of web hosting accounts. I had to upgrade the account to have any semblence of a decent gallery area and now, though certainly not a photo hosting site by any stretch of the imagination, I can maintain a good number of event galleries. Obviously I have to archive older galleries to add new ones, but that is actually a good thing - keeping the site fresh and inspiring return visits. I think I've come up with a very good balance for my own purposes, though for others it may be too rich an investment. I currently pay about $25 monthly for 500mb of disk space, and as part of my standard workflow I use the automation system of Adobe Lightroom and Photoshop to create watermarked web versions of the images I plan to post that generally average ~75kb jpeg files.
This isn't meant to be an argument against hosting sites, since they provide an excellent value-added service for their clientele, but rather an example of an alternative option from someone who chose it.
