Is is possible to make use of EE MSM for development sites? So one site in the installation would be the live site, and the other the development site.
It is possible but not recommended. As you know MSM site share same database, same tables only differ by site id. Now if you use same database for development site and do something strange and it causes DB effects, All effects can possibly affect the main site too as it share the same DB.
Instead of this, I suggest you to create exact copy of LIVE site with a sub-domain or under a new folder on main sites root folder to not list the DEV site in GOOGLE listing you can use robots.txt. (Copy the LIVE site to make a same site DEV version will not violate EE licence terms.)
All I want to say, Database of LIVE site and DEV site must not share the same database.