multi-db: mysql instances vs. different databases in a single instance

Ok, I'm a little confused about the following concept.

It looks to me like the multi-db class is smart enough to work when the blog databases are on totally different machines... (the whole add_db_server() call in the db-config samples clearly shows hostnames/ip/port addresses for these db servers)...

But, the examples, all have the db's HOST and LAN HOST set the same, same IP, same port.

I think this means that these examples are actually hitting the exact same MySQLd instance... Is that correct?

So, here's my point of confusion...

Is it recommended that you run multi-db with a SINGLE mysql instance?
Does splitting the DBs really help Mysql that much?

I am mostly interested in moving to multi-db to improve performance, since with 6,000 blogs, mysql is dumping tables left and right as people hit across my site. I am assuming to get table caching improvements I really need to get these databases into separate MySQLd instances.