The end result is a single HTML file, so it's only one HTTP request.
No way. I'd ask if they're joking, but it sounds like they mean it. Tell your client that is far slower to download, will use much more memory, and will be much slower to load. I am not kidding, that is a whole new level of deoptimisation beyond turning off spritesheets; inlining loads of binary files as strings is way less efficient.
As for spritesheet memory optimisation, we have dozens of critical things to be working on right now, and I have seen precisely zero cases where spritesheeting has caused memory problems in a game, so it's not a priority right now.