Yeap, ever since WLOC went to version 1.5, which was around the beginning
of 2007, it's by default disabled the standalone Windows Defender. Here's
the relevant text from Ms:
"If Windows Defender is installed on a machine and then OneCare v1.5 is
installed afterward, by default the installation will disable Windows
Defender. Windows Defender will then display a dialog indicating that it
has been disabled, and asking if the user wants to turn it on again. When
you are installing OneCare v1.5 you should close this dialog without
re-enabling Defender. OneCare intentionally disables Defender because it
can cause system instability to have both running at the same time, and
since OneCare is a superset of Defender, there is no reason you would need
both of them running."
http://windowsonecare.spaces.live.com/Blog/cns!C29701F38A601141!3842.entry
While not necessary, I think it's a good idea to leave Defender in place on
XP, since if at anytime you decide to remove WLOC, the standalone Defender
code will re-activate, and you'd have Anti-Spyware protection available.
You don't have that choice with Vista as it's part of the OS.