Did Sauron know about the Istari?

[Phrim]

The Istari were forbidden to use their Maiar powers while engaged in their mission on ME. But how binding was that prohibition? Could they ignore it?

Going off on a bit of a tangent here, but I don't believe that Saruman had the option to use powers of the Maiar beyond the prohibitions of his original task. If he did have such an option, why would he have remained confined to his form as an old man in LotR, and not used his additional freedom to a) help stave off Gandalf at Orthanc or b) assist him in the uprising of the hobbits in the "Scouring" chapters? It just seems to me that if Saruman could present himself as a Maia in full power (and a very powerful Maia he was), he would not have been so easily vanquished.