you must first install the OSI PI API and then the UDS Framework in order to connect to OSI PI with MII using the UDS. If you're not too sure what to use, a good "testing" option would be to install the OSI PI Client tool on the box which you're going to install the UDS - it will include the API Library.
I haven't used the PCo to connect to OSI PI but I'm assuming the process is the same as with the UDS (I think you need to use 2.1 to retrive data too, but I'm not sure).
There is another way to connect to OSI PI (and I'm putting my head up here to be shot), using an OleDB connection. This also allows you to do more complex queries to PI as opposed to the standard Current, History, etc... I don't know if this is still available and I know this isn't as robust as it should be :).
To establish an OLEDB connection, you need to have PI OLEDB and UDS 4.0 installed (not UDS 2.5). It works pretty well these days, but you need to be much more careful when creating your queries, especially where limiting date ranges.
As Chanti said, it can be in either place, but I usually lean towards putting it as close to the historian as possible. Not sure what performance impact it has. It is just the way I usually go.
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