Best strategy for using hundreds of 1 kh/s CPU litecoin miners Some friends and I currently run a webapp and we rent 50 dedicated servers that run a few dozen linux VMs each. During the night they are not used a lot so we thought we could use them for cpu mining litecoin. We know that thats normally not profitable but we rent the servers for a fixed price so we could at least make a little money back each month.

Each VM gets roughly 0.5 to 2 kh/s. We already tried some LTC mining pools however all the ones we have found had pretty high share difficulties (64 and higher), so we only rarely got confirmed shares because clean_jobs=True messages would come before a VM could finish a share.

We are now also considering setting up our own internal mining pool that connects to a bigger external pool and divides shares further for our VMs. 
We also considered using some other altcoin type thats more suitable for CPU mining, but that mostly seems more trouble than it's worth.

Whats the best way to utilize such a setup?

Thanks guys!
Most likely it isn't worth the effort, even if you're not paying for electricity. But if you want to do it, CPU coins are the way to go. I'm not sure why you consider it "more trouble than it's worth." Check out the profitability calculators for Memorycoin and Primecoin to see if they're worth your time. If you don't want to hold those coins, you can sell them on an exchange for Bitcoin or Litecoin.