You probably want to get someone like IO540 to answer this ... but in the meantime take a look at:
http://en.wikipedia.org/wiki/Traffic...oidance_System Yes, participating aircraft need transponders.
I did try one of the portable units available from Transair (and others) but found that they don't give 'bearing' on the cheaper models ... so you have no idea where to look ! Quite distracting (the LEDs were flashing non-stop around the London TMA) so I returned it ASAP. There is another portable model which does give bearing for £1,000 but my experience lead me to believe that it is only worth having if you get a more expensive installation that calls out bearing, range ect over your intercom as that way you're not heads down inside the cockpit studying threats when you're better off just scanning with yours eyes in the normal way.
Panel mounted units such as the Avidyne TAS600 (formerly Ryan) can be installed for around £10K (try Lees Avionics at Booker).
Please bear in mind that on a sunny weekend below 2,400' around the London area then you will find there are dozens of threats from all directions ... and that doesn't include the non-transponder traffic. I believe it is a valuable system in many circumstances but it is not the total answer to weekend GA in high congested areas ! - IMHO