Plant the whole thing.

plant it such that half of that sprout issticking out, water it. you will have onion flower and eventually, onion seeds.

How about issues with the Onion itself rotting? Should most of the onion peels be removed? I imagine it would start stinking and rotting,insects and attacting pest, and all that which comes from rotting material.

It isn't worth bothering with, really. The root-system has been destroyed so it likely wouldn't make it to setting seed. Onions for seed production are left in the ground - the plant needs it's roots for the immense task ahead.

I always plant store(super market) onions when they have sprouts--as is. They never rot for me. If the onion is multiply variety, I get about 5 to 8 onions later in the season.
I have never tried starting from the seeds though.

Anna

Think of it liek a experiment. As I said in other posts, Its your garden. If you want to try it out and see, then why not??
Dont remove the skins off the onion though. Plant it just as is...-cass