Well, to start, I would offer to host someone else's site unless you know for sure that you will be able to do so for quite a while. I would recommend you let them set up an account (or you can set it up for them) and give you FTP access.
What I do is I design the site on my local server on my computer... once I have the basics set up in a way that it is presentable, I upload it to MY server under a subdomain. This way, the customer can watch the progress as I go along, but the site is completely under my control (they could possible steal the HTML, but most of my sites are built using php, so the html us pretty useless). Having online will help you test real world loading times and find real world errors.
Once the client pays the final fees, I then FTP the site to their server and send them a CD copy of all the files. This has worked well for me.. my clients love seeing the site come together piece by piece... it is the easiest way for them to feel involved because they can make requests as the site evolves, instead of waiting until the project is finished.. which makes life a whole lot easier when the request is a big one!
You can skim through these two pages on my site... they might help you out a little:
http://cactusflatsdesign.com/planning.php
http://cactusflatsdesign.com/faq.php
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