The functionality in the customer portal requires a web visitor to sign on and I don't know any way around that. For example, the case management application will list the cases for the visitor, and we need to know the contact record for the 'current'
web visitor in order to perform the appropriate case query. The CMS editing interfaces also require that the user belong to a particular group in order to determine if they have permissions to edit the page before the WYSIYWG editing interfaces are enabled.
I think what you have a problem with is the requirement to use Live ID (which in turn requires internet access for your demo environment) and the complicated account signup process. This was carefully thought out to meet the stringent security
requirements for Microsoft to publish this accelerator. That said, you can implement any account signup process that you are comfortable with and the portal framework is written using standard ASP.NET membership and role providers. You are free
to substitute in your own membership and role providers. For example, you can plug in a SQL membership provider, or even an Active Directory membership provider.
You can also consider upgrading to Adxstudio xRM which includes additional membership providers that will allow you to use a contact record for authentication (still with salting, hashing, and encrytion of passwords). The free portal accelerators are
a stripped down version of the Adxstudio xRM project and the schemas and code are compatible enabling you to easily upgrade from the free accelerators to the commercial ones from Adxstudio.