Having worked in a similar small situation and now in a slightly larger but more regulated organisation, I definitely prefer the latter. We aim to cover each other's tasks so between the five of us there's a backup DBA and backup for each specialist area and the two DBAs don't take holidays at the same time.

Documentaion and assistance notes for each project are stored on the team SharePoint area, so any of us can access that and use it in support. Cross training is minimal but is targetted - we know what projects we each need to cover. We also know we can go on leave and the phone is unlikely to ring with problems at work, so we can relax.

All this was driven by the team manager and his superiors who have to carry the can if something can't be supported due to absence.

Passwords are stored in an online password safe with a backup on another site plus a printout in the fireproof tape safe and three of us have the "key" password.