Not to mention the issue that when you start daisy chaining servers, you are encouraging Tremulous to become MMOFPS, which may be significantly more than 16 players (and would require rethinking the goals of the game -- can you have a match based MMO game?).
Absolutely right. Tremulous is best with 6-8 player teams anyway which you
can host on cable/DSL.
There are ways to do (fairly) efficient distributed serving. With a game that uses UDP, it might cause some problems.
A packet lost to the head of a cluster is lost to everyone chaining off of that cluster. UDP is more reliable than it sounds though. Packets are not *guaranteed* to arrive but overwhelmingly do.
For this you need to rewrite the net-code of the Engine.
Go ahead. If you find someone willing to do that.
Are you familiar with my Balance Mod? I'm not afraid to turn stupid ideas into even stupider code.

But why would one do that?
You will not save any bindwidth with it, as it is irrelevant to where you send the data as long as the size of it gets not smaller 
It does not matter if you send the data for 16 clients to a single recipient or to 16 different ones. The amount is still the same.
Not quite true. When you share information with a client you are sending to them the world state, i.e. all (well...many at least) of the game entities and all facets of their current state.
The volume of data shared between two daisy chained servers would not be much greater than that between a server and client. The bottleneck here is sending out the data to all of the clients.
For instance, many people (myself included) host cable servers. These have enourmous downstream capacities (nearly 1 MB/s!) but their upstream capacity is severely handicapped in comparison (48 KB/s for me). Even daisy chaining clients to propagate received information among each other would allow a much much larger number of clients to play.
The drawback is of course the overhead of passing this information along. For most games however this overhead will not amount to more than one frame's worth of lag (50 ms).
This server-sharing would only make sense to take advantage of the additional computing-power you get with chaining several machines.
Computational costs are not a bottleneck.
To get to the point where you could actually save some traffic you'd need to compress the data, that in turn would mean getting a fast CPU and (maybe) more ram.
Thats actually a good question. Does Tremulous compress network data? Is (can?) this done at the hardware level?
For SST this is no solution as that would mean upgrading and that would then finally cost more than the $2.000/year they are at now.
For every cable player (with the stats given above) we can daisy chain 6 other people comfortably. SST's 54 player server, if filled with cable players with others chaining to them, would hold 378 clients with 100 ms ping. These are numbers viewed through rose-tinted glasses but there is potential here.
Dont take it wrong, but you've got to face it that the hosting cost is way to high. Only businesses with the right deduction-setup and money-making plan throw out that kind of money.
We can distribute media content at much higher bandwidth than games require over peer to peer systems already. Its about time we took steps to decentralize the server burden in games.
PS: if you are thinking of joining several different DSL-lines, you'd better forget it right away. Just think man.
You'd need more than 2 DSL-Lines to get the _upstream_ you need and that means you'd also need a controlling server that sits somewhere somehow in the middle and does nothing more than keeping track of the packets and packet-loss and that is totally out of the question. Because this server would be needing the _combined_ upstream capability of all DSL-Lines used together.
One of these DSL servers would be the controller. The communication channel between them would use a little over a single player's slot worth of data volume.
PPS: I like your engagement for SST. But please do SST the favor and think yor plans more thorougly thru. Such half thought plans only damage SST further.
a) this isnt a plan, but an idea
b) my intention is not to save SST
c) SST is not in any way affected by ideas kicked around in this thread