I had to make this decision once, too - I was a foster home for Border Collie Rescue. I had two dogs of my own at the time - a Sheltie and a Border Collie, Nikki. Poor Nikki was a very dominant Alpha, and always thought she had to protect her Sheltie brother (my very tiny Neechee) from any newcomers. Well, she ended up in a fight with another female I was fostering.
I very nearly quit fostering altogether. I could tell she was more and more unhappy by the day. It got to the point where she would protect me and her brother from EVERYONE, including ex-hubs. She also had very strong herding instinct and I was doing herding with her several nights a week.
I never did really put her up for adoption, because the right owner had been there all along. It was my uncle, whose sheep we were used for herd training. She was so happy living with him and following him around the farm - even sitting on the tractor when he did the hay mowing. She never had another show of aggression after that, and still got to see her beloved baby brother from time to time. I am so glad it turned out good for her.
She lived to be about 15 years old. My uncle died in a horrible head-on collision, and she mourned him deeply. (She was usually with him in the truck - I have no idea why he didn't take her that morning.) I took her back into my home at that point (I wasn't fostering anymore). Exactly a month later to the very hour, she died in her sleep on the rug in my kitchen. While it's hard to part with a dog when you know it's the right thing to do, I know most people who have to don't get the chance to monitor their former dog's life the way I did. And it convinced me that giving her up was the best for us all.
I hope my experience helps you a little wee bit.