The only way I can see the Conservatives supporting it is if they are calculating that the damage will be so much worse for Labour then the Tories that the Tories will come out ahead. I really don't see that happening. What could happen though is that the Conservatives weakly follow through with their agreement, putting it to a national referendum without any real Conservative support at all. In this case they are hoping the Lib Dems can't sell the referendum nationally on their own and lose the vote.
From Static
That sounds like`Instant Run-Off.
As far as I can tell, it is just a British term for the same thing.
Jay