The way LEDs disperse their heat is by use of a heatsink. The heatsink is a surface of metal, usually aluminium, attached to the LED. The heat is transferred into this heatsink and then into the air. The amount of surface area you need to disperse heat from an LED is largely debated, but the generally agreed rule is that you need 30cm2 per Watt of energy consumed by the bulb. For example, a 5 Watt bulb needs 150cm2 of surface area to disperse the heat.
The problem designers are having, is that to replace a standard halogen down lighter you need a 16W LED bulb. LEDs with this power do exist, however, you would not be able to fit an LED with a 480 cm2 heatsink into a halogen ceiling cavity. Until a new reliable way can be found to disperse heat produced by LEDs, which will fit into a compact area, lighting a home with LEDs will still require a larger amount of fittings.