Two White Hat SEO Questions

I have been building backlinks for a client. He has another guy redesigning his site.
The site covers the entire US. He is making a new site for every state, thus 50 new sites. So it would look like this: City.keywordstate.com. The guy told my client that each new site should be on a different server, thus 50 hosting plans. I find this totally outrageous. My client is worried that he is being taken advantage of and I agree. Is there any legitimate reason that they should be on different host?

Also the redesign guy is making a separate site map for every city in every state. So lets say Florida would have over 300 pages, each having it's own site map, thus 300 site maps. He says the benefits are "tremendous". Everything I have ever read says 1 site map per domain. Any insights would be helpful and appreciated.

i think your right on this one. I would even try to get it all on one domain for SEO purposes. Its not as brandable but http://www.keyword.com/state/city would SEO a lot better than city.keywordstate.com besides, thats 5o different domains. Why not have one site that will eventually become an authority site instead of 50 different sites.

The only reason why you would want 50 hosting plans is to get 50 different IPs, then link all these sites together.

How much benefit would really be had except for the 50 backlinks. Is there a larger picture I am blind too?