In Camera Raw, a portion is done in the demosaicing (the baseline as part of the demosiacing process) and a portion is done after demosaicing on the linear luminance or color data.
The details of the internal processing pipeline are of great interest to the intellectually curious photographers; indeed, in Jeff's recent Camera Raw tutorial, I found the sidebar clips with Thomas Knoll to be some of the most interesting parts of the tutorial. Curiosity aside, I am quite content to leave the details of the optimal processing to Mr. Knoll. Detailed knowledge of this processing would be of no practical use to most photographers, but would be most useful to software engineers developing competing products.
One can examine the code of dng_validate, but there is no guarantee that the algorithms are the same as used in Camera Raw.
Which is better? That all depends...as for satisfying your own personal curiosity, why don't you just go ahead and test CR/LR vs. the rest of the noise reduction plug-ins and see what floats your boat. I have...and for at least up to ISO 800 on MY cameras, CR/LR is fine and dandy but for heavy duty noise reduction I use Noiseware...although I do so on the post processed image and apply it locally only to those areas that need it.
The post processed image is not the optimal stage of the workflow to apply the NR plugins. I have communicated with Jim Christian, the developer of Noise Ninja, and he stated that NN could do a better job if it could operate on the raw data before adjustments such as exposure that alter the noise characteristics of the image have been made. BibblePro does incorporate NoiseNinja into the raw converter for optimum processing, but that feature alone is unlikely to cause many ACR users to switch over to Bibble.
Application of NR to the post processed image on a layer using surface masks and other methods for local control does have its advantages. However for those who like parametric image editing, this interrupts the workflow and requires generating and most likely storing an intermediate TIFF image.