Two things: first, deep zoom uses similar tricks to this tech, but in a simpler way restricted to smooth pic zooming only. As someone else said it's basically the same as an old system used in special effects since something like thirty years ago, even before computers were used for it - have you ever seen "powers of ten"?
This library though allows creating a tree of objects each of which can be images/movies (and possibly webpages or other kinds) and they can act differently depending on the zoom level. Structurally, it's more like an hypertext. It's nothing earth shattering, but experts of UIs have been thinking on Zoom-based interface for ages now, and this could be a useful tool to develop something in the style.
Second, the fact that there are Silverlight ads on the xbox doesn't mean that it has a complete Silverlight or .Net implementation. MS could just give the specs of a restricted subset of it to ad creators, so that the same ads written according to these specs are compatible with both PC browsers and xbox live.