As far as I recall (it's been quite a while since my last touch with the IDP) you need to install the IDP on each server platform for which you want to compile a Custom Function.
In addition you might need to install it on the Windows machine on which you compile the DLL for the Designer and Repository Manager because you need a 32-bit DLL here.
HOWEVER: I've never done this myself, so please open a service request at Informatica Global Customer Support to get a definitive answer.
And, please, be so kind to post it here; it MAY be that I'll have to work on one or the other Custom Function in the near future, so I would need this knowledge myself.
Thanks and good luck,