Anyone using this practice? I realize it is more costly, but has its benefits.

Costly? You have your own server with 80Gigs harddisk in it! And $5 for add-on domain won't hurt you.

It's a good idea and I'm using it currently.

well if you have separate merchant accounts and DBAs etc.....

Not a bad idea (in theory) however, what happens when a business owner stumbles on your personal site and says "Why am I paying twice as much for the same thing?" Are you going to say, "Well, I thought that because you were a business I could get more from you?". Just something to think about in my opinion.

There are ways of distinct marketing, like value added services for business hosting. Premium support - the oldest trick in the book - my business clients, get a 24/7 support via phone and free training session in using their account control panels when they are located in our metro area, while discount personal account get only online support.

Its just a simplest idea... there are many other ways to provide added values to busineses especially when they are local. :)

It is a good idea because you can keep the brands seperate. Each brand is marketed at a different market segment so there is no need to offer the same plans from each site. Also different levels of support can be offered. e.g no phone support for low cost hosting.