Yes, you still need the disk, otherwise people could just rent/borrow games, install then return them. It would be the end of the gaming industry as we know it. But there are quite a few games you can purchase digitally from the marketplace.
All of the most popular ones are up there. Halo, Call of Duty, Gears, Battlefield, and many more. When you buy from games on demand, it's the same as installing, only you never need a disk. You can just boot it up and play right from the hard drive like an XBLA game, because they've verified that you paid for the game and have no method of returning it to get your money back.