I have multiple instances of tomcat 6 running on the same server (Linux) and it works as expected. I am trying to find out what the standard practice is with regards to sett
If you are running multiple instances of Tomcat on a single host you should set CATALINA_BASE to be equal to the .../tomcat_instance1 or .../tomcat_instance2 directory as appropriate for each instance and the CATALINA_HOME environment variable to the common Tomcat installation whose files will be shared between the two instances.
The CATALINA_BASE environment is optional if you are running a single Tomcat instance on the host and will default to CATALINA_HOME in that case. If you are running multiple instances as you are it should be provided.
There is a pretty good description of this setup in the RUNNING.txt file in the root of the Apache Tomcat distribution under the heading Advanced Configuration - Multiple Tomcat Instances