No ir doesn't
Heh. Actually you might be right - it looks like it's an XNA technology which means that it could probably exist on XP and 2K as well (unless it specifically needs DirectX10).
http://msdn.microsoft.com/library/default.asp?url=/library/en-us/directx9_c/Install_on_Demand_for_Games.asp
As to whether people will use it, of course they will. It's better for the gamer, so it would be a bit spiteful to deliberately ignore it.
More cool details about gaming with XNA and Vista in that conference too.