I emailed Tim Cools of the Custom Templating project on CodePlex and he emailed MS rep from this thread (http://social.msdn.microsoft.com/Forums/en-US/vsx/thread/1ab0bf3f-2810-4adf-bf75-900b98dee8e2) with the same question. Here's the response:
"If a user has VS2008 or higher installed, he'll have the dll installed. There is no redistributable. If he's on VS2005 then he'll need to install the DSL run time redistributable, because it's not included in the VS2005 box. But that does require him to have VS2005 installed as well (as clearly stated in thread you refer to).
So the short answer is that all users must have VS installed to use this DLL."
Tim later goes on to say "But actually there is a redistributable which contains the dll : Microsoft Visual Studio 2008 Shell (integrated mode) Redistributable Package
[link removed - new user limit] But it is way too big (315.9 MB) in comparison wit the dll (84 kb)."
With this I agree.
The final answer, however, seems to lie in T4 for VS 2010 Beta, as discussed here: [link removed - new user limit]
"[T]here are already some new features for T4 in Beta1 of VS 2010, notably the ability to have a preprocessed template that compiles down to code with no dependency on the T4 runtime. You can learn a bit more about his on my blog at [link removed - new user limit] and [link removed - new user limit]"
So, this is what we're probably going to go with. Preprocess the templates so that they do not have any dependencies. I just wanted to share with everyone what I found.