Does the media need to be hosted there? I would think you could use a link
library to point to the 'cast URL, but of course then you're not really
"running" it on the SP server.

Either way you have to have a host server that runs your streaming software. We
recently started up a WOWZA media server for this purpose, but it's a handful.
I'm sure there must be someone out there doing this for hosting out of SP but
the question must be begged...why?

Why not just do it the 'ole fashioned way?

Why? The PTB want to do it. They have seen web  sites that have flash videos
on them so they think that you can do a live  video stream from a web camera.