To say that a database has to fit entirely in memory to achieve good performance is a ridiculous proposition, and simply shows you have zero actual knowledge of modern database server internals or administration. Countless sites happily serve oodles of pageviews per day with actual memory usage far below the disk space used by their databases. Hint: they're not swapping, either.
In general, if you really believe what you're saying, you either (1) have a very poorly designed application, (2) have a very poorly designed database environment, or (3) are speaking to a specialized application that wouldn't reflect the majority of environments operating in real life. This isn't to say it isn't a combination of these options, mind you. I didn't even start on utilizing caching in applications, because it's clear there are other hurdles to overcome first.
I don't think he is saying that. He is saying that in a non-dedicated environment, you share the same spindles with other tenants who may have different I/O access patterns than your application. Careful choice of indexes, good data locality for fast reads, making sure writes are sequential - all that goes out the window if some other application is causing the disk to seek all over the place.
In general, if you really believe what you're saying, you either (1) have a very poorly designed application, (2) have a very poorly designed database environment, or (3) are speaking to a specialized application that wouldn't reflect the majority of environments operating in real life. This isn't to say it isn't a combination of these options, mind you. I didn't even start on utilizing caching in applications, because it's clear there are other hurdles to overcome first.