I can't say I know a lot about web design although I did set one up with a friend (who later said there was no need for me  ).
In my own opinion, web design is now split into 2 groups - those that continue to use applications like Dreamweaver and who's markup is still full of tables etc. and those that have a far more hands-on approach with their code, so that the markup is much cleaner and validates XHTML and CSS standards.
The second group is thankfully growing and so you'd definitely need to ahve a wide knowledge of HTML/XHTML, CSS, PHP and some Javascript to work like this. Standards in this area are very high and web designers are very knowledgeable.
As for your hosting question - both is true. Some customers host with large companies like Fasthosts or 1and1 so just want the files and code to be transfered, while others may come to you with no site at all, or just want everything in one place, so will want hosting from you. If you choose to offer hosting with web design, try a reseller package from a hosting company or if you need more space, get a VPS.
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