Due to the California Domestic Partner Act, is it acceptable (in fact mandatory) to allow a Registered Domestic Partner whose partner runs a sole proprietorship to be an additional signer on a NOW account? This would be similar to allowing a spouse to sign on a Sole Prop. NOW account. Or should the arrangement be treated as a partnership, and therefore together they are ineligible for a NOW account?

I'm not from California, nor do I understand CA law, but I'll take a stab at this.

The FRB has issued 2 Staff Interpretations pertaining to husband and wife businesses.
The first, issued on January 23, 1979 states:
A husband and wife operating a profit-making business as individuals, but not as a partnership or other financial business organization, may maintain a NOW account at a member bank, since it is impracticable to distinguish between funds that are used in their business and other funds of those individuals.

The second, issued on Federal Reserve Staff Opinion October 16, 1986 states:
A husband and wife partnership is not eligible to maintain a NOW account at a member bank. Eligibility for NOW accounts is established by 12 USC 1832(a), which authorizes institutions to offer NOW accounts. Paragraph (2) of that section specifically excludes for-profit partnerships. Although a husband-and-wife for-profit partnership cannot maintain a NOW account, a husband and wife are permitted to maintain a joint NOW account for their nonpartnership purposes.

Reg D is a federal law. It says no business for profit can have a NOW, with some exceptions (as you know). The CA law cannot trump the federal law. I do not believe that Domestic Partners in CA can qualify as spouses and maintain a NOW account if the account is held for a business.