The web server software (Internet Information Services) will reside on the C: drive (or which ever drive you install the Server 2008 OS to). The web site itself (your aspx files) can be located where ever you want them. There is a setting in the IIS control panel that allows you to set up the host directory.
As far as RAID is concerned, yes, you can host your content on a RAID array. I don't believe the drives need to be the exact same size, but you may have to partition your larger drives to match your smallest drive. For instance:
What would be more important for a webserver, putting it in RAID 5 (more hard drive speed), or more RAM?
Right now we are planning on 8GB RAM. Will that be enough for now?
So far our traffic has been about 50GB/month.
To be honest, I wouldn't think you need either. Use RAID5 for quicker system recovery in the event of a drive failure. I don't think hard drive speed is going to matter as much as your service provider's upload speeds. And unless you're hosting multiple web sites on a single server, 4GB of RAM should be more than enough for web services and probably development as well.
Unfortunately, I didn't see anything about upload speeds at GoDaddy.com. If you're currently using GoDaddy, I'd assume that your clients would probably see a significant degradation in their download speeds. My personal upload speed is twice yours (not that I use it). I can only assume GoDaddy would provide a faster upload stream.
The big question here is your clients. Do you have just one client downloading an average of 2GB/day or do you have 2000 clients downloading an average of 1MB/day? If you have one client accessing your site at a rate of 50GB/month, then I'd say you definitely want the faster upstream. If you've got 2000 clients accessing your site at different times over the course of a month, then you could probably get away with a slower upstream speed.
Ok. If you're hosting a site where the primary function is downloading of mp3's, then I'd say you'd want to go with the faster upstream. Whether that means going with a third party like GoDaddy or upping your current Internet connection through your service provider, is up to you.
While using a third party like GoDaddy has the (probable) benefits of faster download speeds for your clients, the downside is that you have to upload new content to their site and you don't have full control of the server.
The benefits of maintaining your own server are that you have full control over it. You can do whatever you want with it. The cons are that there's the upfront cost of building it and you don't get the services (domain registration/DNS Lookups) they provide. You'll have to go out and find other solutions for that (DynDNS.org).