A lot of code is loaded into memory at boot time when it is needed. This code cannot be modified while the OS is running (obviously). So if part of this code is updated then of course a restart will be required before changes take effect.
Do you think parts of a system can be modified while it's still running?
No way, this sucks. With Tiger I can start downloading and installing updates while I'm working. If say iPhoto is being updated then the updater tells me to quit it before I update it. That screen shot makes it seem that we'll have to close out of all apps, even the finder to start installing updates.
Edit:
Even XP lets you do updates in the background while you work.
Edit again:
Okay, nevermind, that screen shot that shows the restarting part says 'simplified interface if desired' so maybe we won't have to close down all apps when using the old style interface.