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Is it a good practice to have hundreds of Top level Sites within a Site Collection, or to have each site collection for each Top Level Site within SharePoint 2007.

we recently planned to move Top level sites to there own site collections as People Picker application shows all of the users within a site collection regardless of permissions (I heard it so am not sure if that is actually the case) and if there is any better alternative.

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There is really only 1 top level site in a collection, regardless if you have multiple site collections or one. They will either be the web application root or the web application root and a managed path, http://webapp or http://webapp/managedpath/site.

In either case, you end up with several subsites below the root of the site collection.

Like anything in Sharepoint, it depends. Site collections are one of the logical boundaries in the platform and serve as one of the first pieces of metadata available to you. If everything in the site collection is related to the parent in some fashion, then yes it's fine to have hundreds of subsites in the collection. If the content is not related, then it makes sense to split them into separate site collections.

Security can be more easily managed when dealing with several site collections. When you get into subsites with subsites with subsites with varying inherited and custom permissions, it can get hairy fast.

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