It is safer to spread out the hosting amongst several reputable hosting companies on different IP address's. This will reduce the possibility of your sites getting either banned or downgraded by the search engines. Some people are paranoid so they prefer their sites to be hosted on different IP blocks couple of reasons are :-
1. If you use either free or very cheap low cost hosting companies you could be sharing with some nasty or undesirable web sites. If these web sites end getting banned or black legged by the search engines for taking part in "illegal" search engine optimization techniques they may blacklist or down grade the IP address which will effect you as well, even though your site is fine.
2. If you use the same hosting company for many sites and then start linking these together to try and improve the page rank you may get into trouble. It is not that difficult for the search engines to work out the IP address of the sites linking to you. If it finds that they are all on the same IP address this may be considered as link spamming. After all what are the chances that a group of genuine links from a number of different web sites are all going to be hosted on the same computer - not likely!.

First of all, welcome to DaniWeb!!

There are two reasons why this is very important. Most likely, the client is requesting this for SEO reasons. For example, if they have a network of sites, they will want to link them all to each other. Linking from different IP blocks is an enormous, enormous boost over linking among other domains within the same IP block - as Google understands that this usually occurs with a network of sites. You seemed to have been right on the money with your theories.

^^^^^ what dani said x 100 . Always try to get your sites on different class C IP block. www.pair.com is a great hosting company because they do this by default!

hmm. Looking for a bit of help here. I have 11 websites all dedicated to various aspects of travel ie one is accommodation, the other overlanding, the other tours etc. our sites are ranked well and we have good inbound links for each site but we do rely heavily on cross linking the sites in our directories, on other various pages and even have some pages dedicated purely to the other sites. Every one of our sites has the same IP address. Do you recommend we attempt to change this?? Thanks. :eek:

I do recommend that you change the IP block for each domain. In addition to that, use cross-linking very sparingly. When a group of sites are cross-linked to eachother via a sitewide navigation or such, Google assumes they are part of the same network - therefore, the value for an incoming link from another domain in the "network" in this case is no more than the value for an incoming link from another page of the same site. It's looked at as a single site that just so happens to span across multiple domains.

For every person that agrees with this theory, I've read somone who doesn't. No one knows if cross-linking with sites on the same IP hurts your SERPs. There's a guy in the process of running a test on this now, but there are so many variables outside of this, the test won't be regarded as valid by any means. If you rely too heavily on cross-linking, I would stop worrying about IP's and start worrying about adding good content that others would want to link to.