Using Memcache Effectively with Drupal 7 Multisite
After much research, here is what has helped our hit ratio and memcached usage:


Upgraded memcached to 1.4.10 (the latest version with performance improvements)
Enabled binary format and compression
Use the default for bins


Our memcached conf in settings.php looks something like this now:

$conf['memcache_bins'] = array('cache' =&gt; 'default');
$conf['memcache_options'] = array(
  Memcached::OPT_COMPRESSION =&gt; TRUE,
  Memcached::OPT_BINARY_PROTOCOL =&gt; TRUE,
  );
$conf['memcache_persistent'] = TRUE;
$conf['memcache_key_prefix'] = $_SERVER['SERVER_NAME'];


Biggest Gains

The biggest gain for us was enabling compression, even though the documentations states that it increases CPU cycles. We have 4 CPUs allocated to our VM, and have not noticed a difference. Time for memcached calls went from ~1250ms to ~150ms (obtained from NewRelic) for creating a piece of content (custom Article in our case).  

Hit Ratio

Our hit ratio is now ~70% -- much better than 55% earlier, but not quiet the 90%+ that some have reported ... the quest continues (-:

Hopefully this helps someone else. If you come across other improvements or have corrections/suggestions, please post comments or answers. 

Update -- Version of memcahe module

We went from version 1.0-beta4 to 1.0 and our hit ratio now is 87% . I had to restart memcached as hit ratio wasn't going past 70%. We have 64MB allocated to memcached at the moment, so this was not a big deal for us.