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1) No transmission/conversion loss. It is probably soldered directly to the DC power regulator on the mainboard.

2) The servers are frequently removed for maintenance. Thus, the batteries will also be checked/replaced along with the machines they serve. As a bonus, there is always exactly the right amount of battery capacity in the system.

To hazard a guess I'd say it's to do with voltage step up/down efficiency.

I agree. Standard UPSes convert AC to DC and back, in order to power the server PSUs and these conversions are inefficient. If the battery is in the server (after the PSU), you can miss out these conversions and save a lot of power.

I'd also submit that low-power electronic components are far more readily available (i.e. cheap) than ones which can handle a lot of juice.

Could also be to do with management, particularly switching - switching large DC currents is problematic (i.e. it arcs). It's easier to manage on a smaller scale.

With the one battery per server, you eliminate one moving part. Well not moving, but you leave out the step of going from dc power to ac power. With their setup, you take 220 vac (note the label on the power supply) to the server and to dc. Any conversion step costs heat.