What is the best way to host Thingworx for local development environment shared among the team?
Should it be local machine?
vSphere client (VM on ESXi server)?
Any of the options you mentioned will work.
The only piece that I might consider is that if the dev team is not in one location, is there a best location to place the server to have the best response times.
Beyond that the more important part is Dev-Ops and processes to manage who works on what and how to manage your development and releases.