In my experience it depends on not only the university, but the subject area. Within my university for one science based field it is not a necessity and nobody does. In another it is expected, in order that you may pass your Viva with relative ease, as it is difficult for examiners to argue against something that has already been peer reviewed by others.
However, I must agree with you, I was shocked when I found out myself that for my own subject area, the thesis wasn't really going to get me through unless it was backed with published papers (and my PhD WASN'T a PhD by publication). It certainly wasn't was I was expecting when I started my PhD and it was a nasty shock when I found out. It turned out that the paper publication thing wasn't such a tall order though, thankfully. Very, very roughly speaking, each publication becomes a chapter or two of your thesis.