Do they need to use OLED to do the 'active notifications' thing where it shows notifications by only activating required pixels? That's a pretty big Lollipop feature so maybe the decision was based around that.
No its not "needed" but if you dont have an OLED screen it will have a noticeable impact on your battery life. Depending on which particular device this may or may not be an issue. If you have a device that barely manages to make it through the day as it is, ambient display is not for you.
