The devs will be able to correct my misgivings, but to my understanding the dedicated server isn't processing physics data. It's merely sharing positional info and stats it receives from players with all other players. It's not actually doing much if any "thinking".
If I'm correct (and I think I am), then it IS down to the bandwidth available.
I just RDC'd into our server, and it's currently running 5 LFS servers, a UT server and a BF2 server, 4 shoutcast servers, an FTP server and a Teamspeak server. It's a P4 with 1Gb RAM and it's ticking over with about 5% CPU consumed. From what I can gather, the LFS dedi is exceedingly efficient, particularly compared with other dedis like the BF2 server.
Based on this, I'd guestimate that yours could run somewhere between "lots" and "buttloads" of LFS servers.
HTH