None of the implementations I have been involved with have used local SQL server, I have never installed SQL Server on the BizTalk server, except on a development machine.
There is nothing wrong with the all in one approach that you have used in fact it should be slightly faster than with a remote SQL Server.
But my preference is to scale out Biztalk Server and scale up SQL server by creating a Biztalk group with multiple Biztalk servers connecting to the same Biztalk databases. This is easier with a remote SQL Server.
You can also scale out the databases but this becomes much trickier come backup time.
With multiple Biztalk servers you can also allocate work load, so a massive batch job will not impact any real time of near-real time applications
One advantage of a remote SQL Server in a smaller implementation, is the ability to use an existing SQL server, save the cost of a license and save the dbadmins having to manage another SQL box.
The Biztalk server is a one or two CPU 1U server 2+GB RAM and minimal disk. All the money goes on the database server.