Only on XP. If you dont use XFire at the same time. XFire is blocked and log you off.
But i have used torrents without it for so long and never even heard a whisper from anyone. So while i can say yes it serves a purpose. I personally dont think it is necessary if used with Private Sites.
But if you use Demonoid heavily then i would suggest using it for the reason that Demonoid torrents can be found all over the web and easily picked up by some unsavory institutes.