I have formed a Delaware S-Corporation for the purposes of operating
an internet web hosting company. The company will have a physical
office and mailing address within Delaware; customer support and
billing is done from the DE office.

The complication arises due to the fact that the best location for
server colocation for my needs is in Pennsylvania. Thus, my company
would likely own and operate its own servers in a colocation facility
in PA.

With company property (server equipment) physically located in PA,
this would undoubtedly establish a nexus within Pennsylvania. This
means that my Delaware corporation is subject to corporate income
taxation in PA as well as in DE.

Web hosting service in both PA and DE is non-taxable, so fortunately I
don't have to worry about sales and use tax collection. My concern is
more regarding corporate income taxation and other related fees.

My two questions are the following:

1. With nexus established in PA, how would corporate income tax
liability be allocated between these two states? That is, how would
one determine what portion of corporate income would be taxed by PA
and what portion taxed by DE, given that all the server equipment is
in a PA colocation facility while the office is located in DE?
(Customers purchase online and are located throughout the country)

2. http://www.lctjournal.washington.edu/Vol1/a005Royalty.html provides
some interesting reading and makes me wonder - depending on the answer
to #1 above, would it make sense to form a separate Pennsylvania
corporation just for the purpose of owning the server equipment in the
PA colocation facility, and leasing it to my Delaware Corporation? The
above article seems suggest that owning physical propery out of state
is what establishes business presence in that state. Whereas if you
lease the servers located out of state, that alone is not sufficient
to establish nexus with that state. If that is true in the case of PA
and DE, then by leasing equipment from a separately formed PA
corporation, the higher PA coprorate tax rate would be applicable only
to the server lease income, and revenue from the actual DE-based
hosting company would be taxable only in DE.

First of all forget the notion that you only will pay state income
taxes on 100% of your income.   The states each have their own tax
codes and while they tend to mirror the federal code, each state has
differences which means that you could end up paying tax two or three
times.  The Supreme Court has even upheld that result.

The basic guideline is that states typically use a two or three factor
test for apportioning income.  The factors are sales, property and
payroll.

Sales in the state / sales everywhere
Property in the state / property everywhere
payroll in the state / payroll everywhere

Calculate these three ratios, add them up an then divide by three. 
That is the apportionment ratio for your taxable income.  The taxable
income is usually your federal taxable income but each state makes
different adjustments.

I'm not specifically familiar with PA and DE so I don't know what
factors they use.  A couple things to watch out for.  Most states tell
you to exclude a factor if the numerator is zero and either double
weigh another factor or just divide by two.

Property is typically average property (1/1 + 12/31 / 2) but there are
screwy rules if you rent.  A couple of states make you assume that the
value of your property is 8x the annual rent.

Go to the state department of revenue for each state, download the the
returns and read the instructions.  The forms will pretty much tell
you what the factors are.

Last complicating factor is that some state make the S corp
shareholder directly liable and others make the S corp itself liable. 
Some states (like Florida) exempt S corps from income taxation.

Good luck.