Steam on Mac does, or at least did last time I tried to use it on a case-sensitive partition. It's not that steam inherently needs case-insensitivity, it's that some of the main app mixes the case of files in the app from what is on disk. So without case-insensitive FS it cannot find some files. Stupid problem really.
Both, you and cuddlybacon are right. A long time ago, they worked under the assumption that the FS is case-sensitive, and all the games I installed back then had title-cased folder names. Gradually, Valve stopped caring about this, and my games stopped working. I had to go in and manually change some game folder names to lower-case. It then kept some small files under SteamApps and the downloaded games under steamapps. They have fixed that now. Now, I have both CONFIG and config in my Steam folder.
How would it work? By a combination of magic and "we can't be bothered; the users should figure out something".
