Here's what i got from our company's MS licensing guy.
First let me clarify, there is two different components: IME and MUI. IME is the Input Method Editor which allows you to input Chinese character (or any other language). MUI is multi-lingual user interface which provides a localized (in our case Chinese) user interface which includes the start menu, menu bars, dialogue boxes. If you use the English version of Windows and just want to type Chinese then all you need is the IME. If you want the whole Windows to be in Chinese, then you need the IME (for input) and the MUI.
The IME is available for any version of Windows XP, Vista, and 7 and can be easily installed. However the MUI is another story, and here is the MUI situation for each operating system:
Windows XP: MUI is available for Windows XP Professional only. It cannot be purchased retail but available only by Volume License. This of course doesn't mean its not available *cough* but you still need Windows XP Professional.
Windows Vista: MUI is available for download but only works for Windows Vista Enterprise and Ultimate Editions. There are "hacks' that allow you to install MUI on the other editions, but YMMV.
Windows 7: same as Vista pretty much