Brendan,
>So SDE/ArcCatalog is supposed to display the feature class as "upssde.'John.Smith'.roads"?
Yes, this is correct. We'll always display the fully-qualified name. This may be different depending on your data's source. In the case of SQL Server, it is database.schema.table
>Will it always assign the Active Directory user's name to the schema/feature class?
The basic model is that the user that creates the feature class "owns" it. SQL Server operates a little bit differently in that several releases ago (SQL Server 2005) they removed the concept of "ownership" as it applies to most database objects. Instead, within a database, there can be one or more namespaces called schemas. When data is created, it is associated with a particular schema. So, you could create a schema called 'Payroll' that housed all your payroll data, and multiple users could have permission to create data on the Payroll schema. John.Smith could create a table on Payroll by specifying the schema name in the create table statement - CREATE TABLE Payroll.Employee. Even though he created the data, he doesn't actually own it.
However.... and this is a big however, ArcGIS doesn't support schemas in SQL Server this way. We are working on addressing this in a future release, but right now we are still tied into this concept of ownership - the user who creates the data owns the data. There are several operations that restrict functionality based on ownership. For example, when using ArcGIS only the owner of a feature class can add or remove columns from it, or grant permission to other users to see it. Despite the fact that SQL Server may allow other users with elevated permission to perform these tasks, ArcGIS will restrict them. So, if your users are going to create and manage data in a SQL Server database using ArcGIS, any user who will create tables or views must have a default schema that has the same name as their user name. Users can only create data on their default schema, and that schema's name must match the user's.
> I thought if I assigned editors to a role or a group, the feature class would take the role or groups name.
No. Once an object is created on a particular schema, it stays on that schema. If John.Smith creates a feature class named roads, it will be referenced as "John.Smith".roads, regardless of John.Smith's role or group membership.
>What happens when multiple users edit a file? Will the file always have the name of the user that created it? And if we export the feature class, feature dataset or database, will it display the users name as part of the feature name?
Having the ability to edit a table is separate from being able to create one. Users can be granted permission to perform edit operations on a table, but that has no impact on the schema that the table resides on. If you export the feature class, the user name will not be part of the export. If the table is exported to another SQL Server database, the user that performs the export operation will be the new "owner" of the table. So if Dave.Jones exports John.Smith's roads feature class into a new database, that table will become "Dave.Jones".roads.
-Shannon