ServerSideCallback load on demand does not update the ViewState. It indeed submits it to the server however. If the PersistLoadOnDemandNodes property of the treeview is set to true (which it by default is) the nodes loaded on demand are logged and sent back to the server. If you don't need this behavior you can set the PersistLoadOnDemandNodes property to false. This should decrease the ammount of posted data.
the Telerik team