Hi Derek,
This question is trickier than it first appears, as a lot of the answer depends on how your back-end is set up.
My suggestion would be to move the login form to the main site, and leave the partner site where it is. You can probably have that form target the existing login routine quite easily. That would mean that you could direct people to the main site (lots of direct visitors) where they fill in the form and are then transferred to the existing partner site.
You wouldn't get any benefit from the dwell times, as these would be on the other domain, but the work involved is probably significantly less - even if your partner site is quite simple.
So - keep that possible solution in mind and I'll answer your questions from that viewpoint.
1. Very hard to say. It's a good signal though, so as long as it makes sense to the customer then it could be worth a shot - even just as "insurance" against the next update. However I wouldn't expect massive improvements just from this... definitely not enough to warrant a major change to a partner set-up!
2. Either replace one of them, or find a way to move elegantly between the two. You really are not going to get both systems working on the same domain in any practical way (unless you use subdomains) very easily.
3. You could iframe the login form. No huge harm in doing so, but just having the form target the other domain is probably simpler and tidier.
I hope that is some help