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The Microwave SQUID Multiplexer ({\mu}MUX) is the device of choice for the readout of a large number of Low-Temperature Detectors in a wide variety of experiments within the fields of astronomy and particle physics. While it offers large multiplexing factors, the system noise performance is highly dependent on the cold and warm-readout electronic systems used to read it out, as well as the demodulation domain and parameters chosen. In order to understand the impact of the readout systems in the overall detection system noise performance, first we extended the available {\mu}MUX simulation frameworks including additive and multiplicative noise sources in the probing tones (i.e. phase and amplitude noise), along with the capability of demodulating the scientific data, either in resonator's phase or scattering amplitude. Then, considering the additive noise as a dominant noise source, the optimum readout parameters to achieve minimum system noise were found for both open-loop and flux-ramp demodulation schemes in the aforementioned domains. Later, we evaluated the system noise sensitivity to multiplicative noise sources under the optimum readout parameters. Finally, as a case study, we evaluated the optimal demodulation domain and expected system noise level for a typical Software-Defined Radio (SDR) readout system. This work leads to an improved system performance prediction and noise engineering based on the available readout electronics and selected demodulation domain., Comment: This article has been submitted to the Journal of Applied Physics. This is the revised version (V1)