Yes, they really are performing the piece from memory which you almost never see orchestras do. There are good reasons why they don't. But I suspect that this was an experiment that everyone, including the audience, enjoyed. A university orchestra can do things that a professional orchestra cannot. They have certain freedoms that professional orchestras don't have. For example, student orchestras are not paid and do not have the demands of a heavily-scheduled concert season to meet. They can decide to spend a whole month, or a whole term focusing on one piece, memorizing it, learning a choreography and so on. A professional orchestra typically has to learn two hours of music every week. For them, the option of memorizing is simply not available, let alone learning choreography!
Here is a thought: could they do this with a more demanding piece, such as Stravinsky's Rite of Spring? I suspect not. First of all, musicians and dancers tend to think about and feel and express rhythms quite differently. Typically musicians are not good dancers and vice versa. The students in the video above are not professional dancers and the choreography was designed with this in mind. Apart from moving about, walking in stylized ways, lying down and doing a tiny bit of jumping, they really don't execute any difficult dance movements. The Rite of Spring would demand much more and much more aggressive dancing and the shortcomings of those who are primarily musicians would be obvious. Also, I doubt if the ensemble would hold together--the Rite is difficult enough when you have the score in front of you and a conductor beating time. Also, it is one thing to memorize twelve minutes of not very difficult music as opposed to forty minutes of very difficult music.
The reason that orchestras do not typically wander about on stage, playing from memory is that it is all too easy to err. With your part in front of you, sitting beside your fellow violinists or flutists, if you do err, it is easy to get back in sync with your colleagues. In a performance such as the one above, there is no room for error! This is, therefore, something of a tour de force--something you can bring off with a short piece of modest difficulty and unlimited rehearsal time. Imagine trying to do this with three rehearsals!
In a lot of pieces, precision of rhythm and tuning would be greatly hampered by, for example, the horns wandering around far away from one another. There is a reason the horns sit together!
So I suspect that, while interesting and entertaining, this is not the kind of thing that has any chance of catching on with orchestras. There is also an aesthetic problem: the creators of this describe the movement as bringing out the "meaning" of the piece (this is in another video clip of a rehearsal, also available on YouTube). Now of course, this just means that they have tried to find movements that are analogues to the musical ideas. You could do it in a thousand different ways. Music doesn't have 'meaning' in this sense. If we look at the example of pop music over the last twenty years, I think we can see that the more the visual aspect is highlighted, the less interesting the music becomes.