From a game-design perspective, there are only two possibilities:
A) All forms of military training are equally effective.
B) Some forms of military training are more efficient than others.
Dwarf Fortress falls into category B. It is well established on the wiki and these forums that the worst form of training is a big mob of unskilled peasants with no teacher, and the best is a training room. It is your choice whether or not to use this knowledge to your advantage.
ps I am sure I have seen more than 2 dwarfs per squad sparring, on occasion.
I wouldn't say one form of training is necessarily better than the other (well, except the training room exploit), just that they have different strengths. Sparring is great if you want to train a few guys relatively quickly in necessary skills (no biting, little kick/strike/wrestle), and demonstrations are great if you want to train up a lot of guys at once, but it can take a long time to train a good teacher.
Optimally, Toady will allow us to designate the kind of training a group does or favors, and we can have our sparring and demonstration squads not getting interrupted by the other. While we're at it I'd like to see learning styles implemented as well, more active dwarves learning better by doing and sparring, and the patient focused dwarves doing better from demonstrations.
ps Yup, I've seen multiple sparring sessions too.