Yeah, the slowdown is emulated to give an accurate representation of the arcade version. Some ports (like DOJ for the 360) give you the option to turn off the slowdown, but it usually makes the game more difficult.
Of course, then you have games like Otomedius, where there wasn't any slowdown in the arcade but they added it for the 360 mode in order to make fun of the shooters of old.
The Black Label expansion is currently messed up tho, has a lot of stuttering which shouldn't exist and will likely be fixed with a patch (Deathsmiles had some minor issues pre-patch as well). It's still worth picking up since BL really changes the mechanics of the game.