I use them both interchangably, and I pronounce it like demon.
Basically, I figure that "baatezu" is what fiends from the 9 Hells call themselves in Infernal, "tanar'ri" is what fiends from the abyss call themselves in Abyssal, and "Yugoloth" is what fiends from Gehenna call themselves. The terms Demon and Devil are used by people on the prime, especially those who don't really know any better. Since Yugoloths speak Infernal in my game, the language gets confused in translation, and they get called demons. Only the most pedantic and particular sages bother making the distinction, anymore.
That said, I think "Yugoloth" sounds cooler, so I tend to use that when I'm referring to the creatures in-game. I guess that makes me a pedantic and particular sage. Oh, well...