I had the same question, years back,...
Short answer(s):
Yes, it hooks into kernel based services and is very specific to the branch it was developed on (mostly because slight changes in packages can break things very easily in LinuxMCE).
And,...
Yes, there are plans to upgrade,... eventually. But, as per above, it is a huge effort for the developers to change versions,... Both in terms of bug hunts, and taking advantage of new features and modes of operation from one version to the next. Presently, development is tied to Kubuntu 10.04, with a thought to go to Kubuntu 12.04. The idea is to stick to LTS versions, for stability and support. The time space in between them roughly matches the pace at which LinuxMCE can be updated and stabilized. Although, you'll find LinuxMCE 1004 is VERY stable for "pre-Alpha," or however it's categorized.