My experience tells me that for search purposes the website server's location is irrelevant (all other factors the same) as per results output.
What makes a difference is website extensions (like .ca .ar.es.it) but
most importantly, location from which the query is done.
Same keywords searched with the same Google.com from, lets say, Spain, produce completely different results to the ones produced if the query is performed in the US. You can try this by asking a friend in another country to perform the query you are interested in. You can also try using anonymizer.com (if you are non-US).
I think Google is trying to be too smart here and what they are achieving is a big FckUp: What about those services or products that are meant for export? These guys are assuming local people do, think, relate and buy locally. This reminds me this really bad Steven Segall's movie: "Something-III". This phrase made the movie worth the viewing: "
Assumption is the mother of all **** ups". This is exactly what Google did.
Imagine you have a travel agency in Argentina and that your target market is Spanish - European. Somehow, Google manages to identify your site as Argentinian (your DMOZ location, your extension .ar and other same country links).
Google then manages to produce better results for Spain based sites with "Tango" keyword but with lower PR and less country, keyword density "Tango" and travel specific content. The Argentinian one falls well below just because its identified as Argentinian and because the search is performed in Spain : ANOTHER COUNTRY... BIG MISTAKE!? (Don't think I am deriving this conclusion with one site, the above is just one example of quite a lot of experiments).
Doesn't Google realize that we are a Global Economy with consumers buying stuff from all over the world?
