To answer the second question first, you don't need a dedicated box for the proxy. It can be installed on the Domain Controller or on a domain member machine. We recommend installing more than one windows proxy in the domain so your applications can have an automatic failover in case one proxy becomes unavailable.
The OS and hardware requirements remain the same, no matter how many targets a proxy is managing. I don't have numbers, but this would depend on the activity, how often the passwords are changed. I have never seen a limit reached yet.