I contacted our business partners team regarding your questions. Noted below is the guidance they provided:
"In general, on-premise projects focus more on customization of the software, while on-demand has an emphasis on change management and business design and execution. On-premise projects are typically very heavy technically. On-demand efforts lean more toward the impact on the organization.
A bit unclear about question 2, but the Ariba on-demand solution is multi-tenant. In this case, there is really one configuration of the solution, yet integration with legacy systems at the customer site must be evaluated and defined.
Ariba currently provides a demo site to all partners, but this does not allow for integration. Currently, the partner will have to purchase a license to demonstrate integration to other systems."
Ariba Exchange Community Manager