I am on my way to part 2 too.
1) Do we need to show classes like Business Delegates, Session Facades etc. in class diagram? or simplify class diagram with only business components with Controllers/Managers etc?
-Why not? JEE pattens apply not only to JEE technology, in addition, this is
SCEA.
2) As per usecase specification in the assignment, there is a Basic Flow. Do we need to assume alternate flows and show them in diagrams(say sequence diagrams) ?
-If so it will be helpful, at least I think it won't make you lost point.
3) Can we split the sequence diagrams if it is becoming larger?
-I suppose so
4) Do we need to show authentication process for each usecase in sequence diagrams? Instead write a separate usecase for authentication and put a note/comment in each usecase sequence diagram?
-Authentication should be transparent in an application, a centralized authentication deserve a centralized diagram instead of scattered one.