For the most part, yes, SQL Server uses a short circuit for the AND and OR statements, but sometimes the operations are not performed in the order you expect. This is fairly easy to verify using the following:
SELECT '"Divide By Zero" error' AS [test] WHERE (1 / 0 = 1)
SELECT 'NO "Divide By Zero" error' AS [test] WHERE (1 = 1) OR (1 / 0 = 1)
Here you can find a more detailed analysis: Gianluca Sartori: http://www.sqlservercentral.com/articles/T-SQL/71950/