I would qualify that in two ways:
1) The sites I worked with tried not to set geo targeting. They were .com sites. A UK hosted site that sets geo targeting to US, may already have many of the advantages of a US hosted site.
Come to think of it, I have a counter case. I worked with a .co.uk site that was hosted in the US. They couldn't get any UK market share with that setup (and weren't trying for US market share). In January 2009 Google made some algorithm adjustment and the site took off like a rocket in the UK. It started gaining UK market share just like a UK hosted site.
2) I wouldn't expect traffic to increase right away. I would expect the rate of growth after a year or two to be greater if the hosting matches the target country.
There is also the matter of response time and user experience. The US hosted .co.uk site I mentioned has always been at a disadvantage compared to its competition in terms of response time and usability because the traffic has to traverse the Atlantic. I believe that Google is including user experience metrics more and more into the rankings and hosting close to your audience is the type of thing that could make a big difference.