In the latest Demigod build as of March 12, 2009 (3C, I believe), I hosted a 5v5 custom game, and filled the other nine slots with computer controlled Normal AI.
I attempted to pause the game through the menu, however, the game continued to play in the background, despite me hitting pause. Furthermore, I was not able to get rid of the menu blocking the centre of my screen, so I was forced to exit the match completely.