I'm nowhere near as technical as anallawalla with servers - and of my 'well established' sites, just one is a 'dot au' and none are hosted in Australia.
That one 'dot au' does well in both big google and pages from australia.
I have newer sites that are hosted in australia, some are ranking well - some only rank for detailed phrases.
I should add that I looked closely at all my stats - this Novembers traffic is up 20% on last November (just counting the sites that were around last Nov). But like I said - some are up and some are down.
I never thought I could loose ranking by moving servers to another country.
I thought it would be easier to rank in 'pages from australia' as all competing pages hosted outside australia or without the AU domain - don't appear in the SERPs.
I've been keeping an eye on this issue over the years;
Some SE's have used Australian sites only as the default (AV, Excite) - but fortunately for me didn't keep it up for long.
Also, till recently, high bandwidth Austalian hosting was EXPENSIVE - the national telco charges $185 per GB (I got a quote about a year ago from them and they don't offer any discounting for high usage - I think I said I needed up to 50GB per month, they quoted the full $185 per GB)!
I notice Yahoo AU with 'AU only' selected is happy with my 'dot com' hosted outside Australia.
But - if my theory of users activily selecting 'pages from australia' on Google is true - I'm missing out on traffic.
I have also found some reasonably priced bandwidth in Australia.
So -for me, if I cannot find a down side... I'll look to move my popular sites to Australian servers early next year.
I'm a bit all over with this post - but just one more thing...
Is it a fact that Australian hosting of a 'dot com' will result in being displayed in SERPs 'pages from australia'?