Hi Pankaj,
I will try to answer your questions.

1. What I'm wondering is when you go for Active/Active
mode, then whether both the nodes communicates with the
single instance of shared device or only 1 node
communicates with it?

Answer - By shared device, I assume you mean shared drive.  Each instance
works with it's own shared disk(s), but never will they intermix.
For example:

VirtualServer1\Instance1 has disks R:, S:, and T: in it's group.  
VirtualServer2\Instance2 has disks X:, Y: and Z: in it's group.

The data in X, Y, and Z is complete separate from R, S, T and would never
ever be accessible to VirtualServer\Instance1 unless you uninstalled
Instance2.
This is true even if both instances are running on the same node (physical
machine).  Instances should be thought of as COMPLETELY independent from
each other, as if they were running on completely separate machines.

2. If only 1 node communicates then what is the advantage
of Active/Active configuration over Active/Passive
configuration?

Answer - Advantage of Active/Active - You add another SQL server to your
environment.  The other node isn't sitting there idly waiting for a
failover that might or might not happen.  It's actually being used.

3. Also I guess Active/Active configuration requires 2
licenses of SQL-2000. Is that true?
Answer - True.

4. I know that we can run 16 instances of SQL-2000 on a
cluster. Now, I understand that - logically, each instance
data would be different than other thats why it is a
seperate instance. So how does the client application
knows which instance data to use? How does the application
takes care of providing latest data always?

Answer - You configure your client application to talk to the instance of
SQL it should be using.
For example:

1st Physical Machine Name: NodeA
2nd Physical Machine Name: NodeB

VirtualServer1\Instance1 uses Drive T: and holds accounting data

VirtualServer2\Instance2 uses Drive U: and holds marketing data

Users in the marketing department would connect to VirtualServer2\Instance2
Users in the accounting department would connect to VirtualServer1\Instance1
You would specify the SQL Instance in a UDL File, connection string, DSN,
or however your application requires you to specify the servername.

For more information and a great installation checklist, check out the
following:
SQL Server 2000 Failover Clustering
http://www.microsoft.com/technet/prodtechnol/sql/2000/maintain/failclus.mspx