When I tested delivery of office 365 I had all the flies in the SD Library. But there would be nothing to stop you creating a script that mapped a drive to a central location and invoked the setup.
I have not tried patching, but as with any thing MS I believe it best to use file shares as the setup program will work out which blocks of the files it needs rather than copying the complete file.
This is the XML that I used.
<Add SourcePath="" OfficeClientEdition="32" >
<Language ID="en-us" />
<Updates Enabled="FALSE" UpdatePath="" />
<Display Level="None" AcceptEULA="TRUE" />
<Logging Level="Standard" Name="Office365Setup.log" Path="C:\windows\temp\" />
<Property Name="AUTOACTIVATE" Value="1" />
Best to run the setup from command line and only create the SD package once you have all the right setting for you particular environment.