I'm not sure about this one - it's definately not my experience but yours could be very different.

The system definitely reports data back to MS but I've never seen a box have issues because we denied it the ability to dial home or update. Unless the PC is online and the user is actively trying to prevent the updates installing? I've seen users pull the plug on a PC that started/midway though updates hoping to stop them and it would often make a mess of things.

We had a small handful of XP then Win7 boxes that were completely off the grid/standalone as SCADA access points/controllers? for several years without issues.

Likewise, we had one box where the vendor did not allow any updates despite it being networked and online. They had disabled win updates completely without our input. It ran just fine for a few years until it was picked up in a security audit. We didn't understand why updates were disabled at that time so we switched them back on and updated. The PC ran just fine until it's eventual retirement.