Server configuration with IIS and SQL

We have an intranet application in classic ASP that uses SQL server as the DB. Currently, both the application and the db are on the same machine. We got a new server (with more memory, more disk space, and faster processor) and were going to move SQL onto that server and leave the app on the current server.

The plan was to have the old server house the application and a backup of the db, with the new server housing the db and a backup of the application. In getting this setup, we have run into some problems with automatic db failover (specifically having the ODBC setup on clients know where to go).

The new machine will be able to handle having both the application and db, without performance issues. The only concern here is that currently there are probably around 100 users, which will increase to around 3000. At that point, I'm not sure how well the machine will perform with both the app and db on the same machine.

Given all of this, can anyone give me some pros and cons of going with a one machine or two machine setup? Thanks.

I like having the db server on a different box from the web server.