no. you still compile in scratchbox. But if you read the documentation on how scratchbox works you will find out that an ARM scratchbox target is a lot more than an image running in the emulator QEMU. It is a rather beautiful mesh of a crosscompiler, local tools (run on host CPU) and a basic maemo image run on an emulated ARM environment (QEMU). scratchbox combines those things and gives the appearance of a local ARM environment. But if you compile a binary in an ARM scratchbox target you do not compile using a gcc compiler running in a QEMU image (that would be too slow), but you use a cross compiler on the host. But if you try to run an arm binary, that is run on a QEMU emulator (by default). That is what scratchbox calls CPU transparency: it automatically switches from host tools and ARM tools as needed. In the target setting you can also set scratchbox to use a real N900 device to run ARM binaries, using a network connection. Compiling will still be done using crosscompilers on the host, but calls to ARM binaries (in for example config scripts) will be put through to the N900.

At least that is how I understand it.