I've got a small company with around 50 users located in 2 offices connected
by fractional T1.  Main connectivity to the Internet is "business class"
cable connection (8Mbit down/1Mbit up).  Currently have Exchange 5.5 sitting
on NT4 PDC with two other NT4 servers as BDCs and providing WINS, one in
each office.  I should mention also that the Exchange box is also the
primary file server for the organization.  Due to a number of factors
including my increasing loss of sleep and the age of the hardware, it's time
for a major upgrade.  The existing servers have been cobbled together over
the years from second-hand sources on a shoestring budget.

Problem is, the company owner is fascinated with technology and often reads
articles about IT without an understanding of what he's reading but has
become somewhat convinced that he can outsource everything and get rid of
the headaches of hardware upkeep and any internal IT staffing. I currently
manage the network as best I can while also serving as the company's "go to"
guy for virtually anything that absolutely has to get done "right away".
I've been unsuccessful in attempting to convince management of the need for
an employee dedicated to IT to keep things running smoothly.

Focusing on the upgrade/replacement of the existing messaging platform, I've
priced a complete Exchange 2003 solution including 50 CALs at around $8,000
from Dell.  Management's argument is that we can move to hosted Exchange for
around $10 to $15 a month per user and never have to worry about backups or
upgrades.  Due to recent bad experience with a newly hosted
business-critical application, I am convinced this would be a huge mistake
for the company.  My concerns are:

       1) hosting costs would run between $6k to 9k per year
       2) we lose some management capabilities
       3) substanstial additional internet bandwidth would be required (at
signifcant cost) to sustain user productivity

How would you go about proposing the best solution to management?

Thanks!