Need Help: Best Backend Multisite Architecture?

Hey,

This one won't be too easy to explain...

I planned on creating quite a complex Drupal webapp. It would be a commercial application paid by monthly, adjustable subscriptions. The application would be multiuser and completely configurable. Because of complexity and amount of needed configuration for each "group", I can only assume that the app must be offered to each "group" as a separate installation - instead of having one site that has thousands of users. Using organic groups seems like it absolutely won't work for a system like this - also having separate databases for each "group" could keep things much cleaner and much more efficient - instead of having a single, massive database storing everything for everyone.

So my problem..

How would you suggest setting this up? Powerful dedicated server? Cloud/virtual servers? Some apache hacking to create virtual domains? Use cPanel to create subdomains? A lot of issues and problems come to mind..

1) Use a single code-base? Is that even possible?
2) How do you deal with module and database updates if you have 1,000 sites?
3) So many sites begin to overload the system?
4) What is best for scaling?
5) Any possibility to automate a system like this?

Well, I'm completely open to anything that can be offered.

Thank you for your help.