BuddyPress.org

The only difference between WP and WPMU is on WPMU each user on the site will have their own blog with an admin. It’s like having your own wordpress.com. If you want just a social network type site then I’d go with WP + BP. Functionality wise there really is no difference between BP on WP or WPMU.

As for hosting. Thats a personal choice. I use shared hosting with some cacheing and I off set with hosting static files on Amazon S3. If you make your themes slim and compress files you should be ok unless you get linked to by a major site and a million people are hitting your site.