A question which came up during my first game of HH was this: What is the purpose of the Vengeful Spirit? In particular, why would Horus (and accompanying troops) stay on the VS rather than drop on Terra and get stuck in?

My initial thought was that it was a place where Horus could, in effect, hide from risking getting killed -- and therefore losing the game for Chaos.

Am I correct or is there some other benefit for Horus staying on the VS?

While on the VS, he is only vulnerable to Boarding Action by the Imperial player. On Terra, any chump can attack him. Of course, if the Imperials get their orbital attack combo: Assemble + Boarding Action (both of those off the strat map) + Assault/Onslaught from hand, it's gg, Imperials win. Most of the time, I keep him on the VS until it feels like the Imperials are ready with their combo, then bring him to Terra ASAP. Once on the ground, especially Titans Stride the Earth Event for the Imperial player (especially after Sky Fortress + Assault) tends to end the game in an Imperial victory.