As others have said, don't let them run ad-hoc queries against the production system for their reports, it will all end in tears. People with no appreciation for SQL won't think twice about running SELECT *, exporting the results into Excel then using Excel to find the 1 record they actually wanted in the first place.

I would keep them off the production box altogether. It's been my experience that once a system is in place, however temporary you may have intended it to be, it suddenly becomes the "business critical" can't-be-changed-ever way going forward. And if the production db is slow it's your fault (as the DBA) not their fault because they are running "essential reports for senior managers".

I think you could make a good business case for them having their own server with a copy of the db. Cost would be minimal if you use SQL Express and, dare I say it, a desktop PC with 4Gb RAM. I'd probably still attempt to persuade them that they need a server with SQL Standard but be prepared to drop back to hideous desktop PC solution later. It will make the cost seem suddenly uber cheap and then they feel they've "saved" the company money by digging their heels in and overcoming the nasty DBA.

When (not if) the PC hard drive decides to throw in the towel you can smugly point out they should have gone for a server in the first place (with RAID 1 on the disk).