Yup... if your External breaks, or goes missing, or anything like that, the normal functions for the Wally will continue to work. You can also interchange the HD that gives it the ability to be used as a DVR regularly. I am really just playing semantics here, but it is technically not a DVR even with the eHD. It is a non DVR with dVR capabilities.
DVR is Digital Video Recorder. The Wally is technically a DVR after paying a one time fee and adding a hard drive. You can't make up your own definitions.