Is the Teaching with Sakai Innovation Award reserved to distance learning courses?

No. Any course, either in-class, distance, hybrid or self-paced is eligible. New in 2011, non-course sites (portfolios, staff training, etc.) are also eligible. All you need is to use at least one of the Sakai tools for a part of your course. The course must be offered by an accredited education institution (K12, College, University, etc.).