Of course, you can use InstantDjango for development. InstantDjango uses SQLite3, which is a very reasonable relational database for inline or light / sometimes moderate use. The whole purpose of django is that the ORM layer provides database portability.
However, I would not use InstantDjango to deploy in the middle of a serious web application. SQLite just doesn't scale as close to Apache (etc.) as possible with MySQL / Postgres. In some cases, the way SQLite handles data types (or rather gloss over data types) can lead to problems with the django application, which will later be deployed using MySQL / Postgres ... if you are developing SQLite, always check its actual deployment environment before going live.
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