I've got several VMs (Windows Server 2003-2008 R2, application servers, Exchange, SQL, small file servers) residing on ESXi 4.1 hosts. We recently purchased a Data Domain system allowing us to backup our data and have it deduplicated, compressed, and stored at two physical locations. The NetWorker server is connected to the vCenter server allowing for auto-detection of the VMs and backing them up via VADP.
Reading the various manuals for NetWorker (v7.6.3) implementation in a VMWare environment, they reference setting up VADP on the Storage Node in order to maximize minimize the network hops involved in a backup process by running at system bus speed between the VADP appliance and the Storage Node.
In the backup configuration in the NetWorker Admin console, there are options to use a Storage Node or to backup directly to the DataDomain system via the NetWorker server. What are the benefits to backing up using a Storage Node versus directly through the NetWorker server?
If you are setting up Networker with a single Networker Server, the Server is also a Storage Node by default. In small environments (like mine, and likely yours), the Storage Node role, Server role, and Admin Console role are all on the same server, so that's where your VADP should be.
A Storage Node is a Networker server (little 's') that has backup Devices (in your case, the DataDomain, but also tape drives, autoloaders, more disk, etc.) attached to them. Even though the DataDomain is not DAS, it is still controlled by the Storage Node.
When you get to larger installations, it can be helpful to split backups across multiple Storage Nodes for better performance. So the Chicago office backs up to a DataDomain on a Storage Node in Chicago, while the NYC office backs up to a tape autoloader on a Storage Node in NYC. The Networker Server (big S) then keeps track of what data is on which Storage Node.
If you haven't logged into EMC's Powerlink site, make sure you get access to get the manuals (which aren't easily available otherwise...grrrr...). I'd also recommend the EMC Networker Administration video training, since that helped clear up the whole Networker architecture in my head so it made some sense. I had very similar issues trying to get up to speed with our setup.