Is it possible to do development just using Instant Django? Do I need to have the normal version working or can I just use this instant version? Has anyone used it?
It is, of course, possible to use InstantDjango for development. InstantDjango uses SQLite3, which is a perfectly reasonable relational database for embedded or light/sometimes-moderate use. The whole purpose of django is that the ORM layer gives you database portability.
That said, I would not use InstantDjango for deployment in a halfway-serious web app. SQLite just does not scale anywhere near as far as Apache (etc) with MySQL/Postgres. In some cases, the way that SQLite handles data types (or, rather, glosses over data types) can lead to issues with a django app that is subsequently deployed with MySQL/Postgres... if you develop using SQLite, always test with your actual deployment environment before going live.
You've asked a number of questions on SO in the last couple days about deploying Django with one or the other of the major relational database packages (http://stackoverflow.com/questions/738433/getting-started-with-django-instant-django ; http://stackoverflow.com/questions/719431/is-it-me-or-are-rails-and-django-difficult-to-install-on-windows ). I suspect the reason you've not had many answers, and therefore feel the need to keep asking the same question with different phrasing, is that we need more specific examples of the errors you're having.
Plenty of folks install Django with MySQL, Postgres, and other databases, every day on Windows and *nix systems. If you give us the exact details of which non-SQLite database you're trying to use, the way you've installed it, how your settings for that database are configured in django, and the error messages you're getting, we will have a better shot at helping you.
If you're still having trouble based on the answers you've had, perhaps you can turn to a professional system administrator and/or DBA you know to show you the ropes with installing and configuring this kind of software.
Until that time, by all means, start developing using InstantDjango and SQLite. It will not have to be thrown away for vastly re-written when you migrate to a different relational database, and will help you make forward-progress with the framework that can only bolster your knowledge for understanding how to deploy it in production.