With the number of virtual servers most of us are hosting you would run out of VLAN's very quickly. What I do is static route subnets to host nodes and let
the host nodes do the L3 work.  This takes care of MAC address conflicts,
spoofing, and many other problems.

So you still carve out a subnet for each vps? For me that didnt make sense to do because now each customer gets 4 ips (/30) and it seames like a waist of space. a vps with 40 nodes with consume 2/3's of a /24. With IPv6 i guess it wouldnt matter :) I was just trying to do my best to save ips. ebtables acts as a ACL on the edge interface.

~Shaun

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