In this case, a Package and an MSI would behave similarly.  Or, more to the point, the Install on Demand functionality would not be any different if you used a Package or an MSI to install Office.  When you are using either (with Install on Demand), access to the original source files are always going to be necessary.

The Package won't include anything that was specified as Install on Demand.  It will simply create pointers to the source files that would be used at a later time, just as an MSI would do.