As my army of ISPConfig servers grow, I'm very curious as to what strategy other people think is better. As a server's load increases and nears capacity is it better to increase the perporfmance of that server (either in a virtual machine or physical machine) or to simply run another slave of lower performance?
That depends on why server load increases. If it's because all memory is used up and the system is starting to use swap, it's a good idea to add more memory. If you have munin installed, this should give you an idea why load is increasing.
I do have munin running, but the question is more hypothectical as my servers aren't at an increased load. But, on the same note, I'm sure I've seen it somewhere, but what is the recommended minimum spec to run a slave ispconfig server with all services?
Slow hard drives can also lead to an increased server load, so changing hard drives might help as well. If, on the other side, your CPU is too slow to handle the load, then it might be better to get a new, stronger server. It might be possible to run it with 256MB RAM, but I'd use at least 512MB RAM.