Yes, the Dreamcast devs have the choice to either user DreamCastOS(? made up name ) or WindowsCE and DirectX.
That can be good news for developers since some companies usually have both a console and PC version of their games. And porting WindowsCE code to Win9x/2000 is not rocket science. Also, I heard that the OS is actually burned onto the CD, so that each system is guaranteed to have the same version of CE for a particular game, compleately removing any incompatibility scenario.
Now, why the frown?
Cya,
-OberonZ