Let's say you wanna rank for a french kw on Google.fr: your best option is to go for a .fr
Google.co.uk? Go for a .co.uk
If you give a read to the Google webmaster support, this is explained withouth much secrecy (sorry but I can't find the exact quote/page/URL)
Moreover, to benefit the most from geolocation, if you have .fr domain for a french audience willing to rank on google.fr, you should host it on a french server as well.
So to follow Google's guidelines you should always host the site on a server in the country you are targetting.
Said so, I've never done any of this but I've had good risults in terms of rankings nonetheless:
My domains are .com or .org or .net, registered with a US registrant, hosted on a US server yet I'm ranking pretty well on google.european country for the kws i'm targetting (i just don't like hosting anything in my country cause it's more expensive and less reliable than i.e. doing it on US soil)
So, my buttom line is:
in my experience, "geotargeting" is not a crucial factor. But if you can benefit from it, just do it.