I agree with pretty much everything in this post, though I would add one more thing. It's not so much a downside of caching as a misuse: Application-level caches should never cache local data. Cache network responses. Cache the results of computations. Don't cache files or disk reads. Operating systems already implement disk caches, and they do a better job of it than you. That's in addition to a modern computer's nu…
I don't think that's very good advice in a heavily-loaded shared hosting environment. A disk read could easily stall for tens of seconds, just because the kernel whimsically decided to throw out the cache (or because your server crowded its memory container). I actually don't want any server touching a disk while it's serving. Everything should be read before service begins and never again.
(With caveats for zero resource projects of course, but even for those I strongly suspect for many people paying $5 or $10 per month for "less crap hosting" is probably a better solution that prematurely optimising by adding caching and all it's inherent complexity to a fundamentally broken platform)