Yes it does and its not just the dust but the fibers that cause cancer. But in the semi-realistic (you can swim in lava and live) game I thought that it would fit to use asbestos in the same way that it was used in the 1950's through the 80's as pipe insulation. Maybe some time late there would be a sickness that occurs if you are playing the same world 12 to 20 years later.
Edit: Thanks SpwnX for asking Greg. I wish there was another way to protect from the hot pipes other than the fire resistance potion. also I wish it would just set you on fire instead of instant death.