Kinda...
It doesn't have separate tracks for music and vocal - but it does utitlize some good signal processing features of the PS3 and has the option to dim down just the singing part of the track when there's noise through the microphone. You'd be surprised though, I ended up turning this feature off (default is OFF). Game is stronger with the vocals on at the same time as yours.
You can also use R2 to turn up your microphone volume from within the game or during a song. If you watch a replay of the whole thing, you can crank up your microphone volume there too, so it keeps the mic track from YOU recorded separately.
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