Yes, it needs to be Win XP or 2000 Pro, or Server editions to run. They must have IIS installed. Are you getting an error message when you get to the screen with 'LOCALHOST' and 'Default'. If so, what is the message? You may have an IIS box with the defaults configured with slightly different names. If you go to IIS Manager and review the names in the panel, you'll more than likely see the name you need. There's also instructions on how to do this programatically in VFP in the Readme.txt. (The next version of AVFP will search for the names of all installed IIS servers and present them in a drop-down list so that you can choose.)
After all this is done, it should pop up the demo app. Then you can use WebAppBuilder to create the base project for any new web apps you do.