So, I've been digging into why Windows XP can't deal with a system clock set in UTC. Apparently, it even keeps its internal time as UTC, but it still won't deal with a system clock set to non-local time.
I found this article from an MSDN blog, which gives a decent summary of the reasons why. Basically, it would break support for some pre Windows NT/XP things. Well, XP and Vista already break enough other things compatability-wise that this shouldn't be such an issue now.
I also found this nice article on all the reasons it should be changed.
Apparently, a registry key does exist that once allowed people to use a system clock set to UTC, but it isn't documented, and most of the newer Windows code hasn't been updated to support it. No word on if Vista does a better job at this. Has anyone else had luck getting windows to cope with a UTC system clock?

Even under Vista, it's somewhat buggy. If you use that registry key, Windows itself has no problem figuring out the time, at least from what I've seen.
However, some games (Flight Simulator in my case) seem to do something to the clock that causes it to revert to UTC and stop using your time zone setting. Why a game should have access to do anything to a clock is beyond me, but that's Windows for you...
I just gave up and set my machine (dual boot Windows and Linux) to local time, which has its own caveats, of course.
"Well, XP and Vista already break enough other things compatability-wise that this shouldn’t be such an issue now."
I think you missed the central point - it's not about running old Windows applications on Vista. It's about being able to run old versions of Windows on your computer - dual boot. Even if Windows Vista were totally incompatible with Windows 2000, you can still dual-boot it.
_ed: fix formatting to make textile happy_