I wouldn't recommend banner advertising. Click-thorugh ratios are very low, as low as 0.1 % and you usually have to pay for 1000 impressions. It's not economical for small businesses.
What I would recommend to you is submiting to various search engines/portals, they take a while to get in but if you manage to get a good ranking it's free traffic.
I would also look into pay per click directories like goto.com and rocketlinks.com, they are great as you pay per click. They are geting expensive but you can always find keywords that go as well as 0.2-0.5 $.
Another thing that I would recommend to you is advertising in ezines that are related to web hosting, advertising in ezines is a lot cheaper than banner ads and has a lot better click-through ratio.
There are a lot of other ways to as I'm sure other will point out. These were just some that came to me now.
Hope this helped you,
Word of mouth works the best, I've been around for near 4 years at various places within the hosting industry, and I've allways used word of mouth. It works the best.
However, it is slow going to start and you have to work a bit harder to get those first 30 customers or so, but past that point if you treat the customers right then you'll start to pickup business and you'll be growing. But again, it will take a lot of time.
I guess advertising in other ways is ok and can be helpful to create a "buzz" about your company, but thats only half the battle, the other half is getting people to say that you indeed are a good company .