First off, thanks for the well thought out reply.
I dont think I disagree with much of the substance of your post. Your concerns are valid.
I do think the scale of these drawbacks is up to interpretation and that is where i believe the majority of our differences of opinion sit.
To your "users can move is a user hostile stance" point, I agree that you are correct today. I hope (and believe) we will reach a point where migration is such a non-event that this concern goes away.
As for vertical vs horizontal scaling, I believe there is more to be gained from vertical scaling than you are considering. Performance that can handle millions of users on a single instance will also lower the hosting bills on a hundred-user instance.
I also think that there is a finite amount of horizontal scaling that is possible without fragmenting the network. Imagine the extreme: putting every user on their own instance would itself burden the network.