is there legal issues with hosting a web proxy? I have heard of people here having problems with there proxies being shut down and I dont want my web host to terminate me
Read your hosts Terms Of Service with a magnifying glass that has a fine-tooth comb taped to the handle. The answer to this question is entirely up to your hosts TOS.
Yes, on top of that it's better to go with specialized proxy hosts or dedicated servers (provided they allow proxies).
Also remember to do whatever you can to secure your proxy. Spammers often abuse anonymous proxies by sending unsolicited mail through them. This causes your IP to be vulnerable and the hosting provider may suspend your service. Best to use a software that has support for filters and disable access to popular webmail services.