Why would you use prod lambda in your test suite? Latency and other issues aside, that requires pushing your environment to a lambda (which can take a massive amount of time especially with larger uploads) to run a test suite that's supposed to take a couple of seconds.

we need to create a new build in order to deploy it anyway. The build is hit with some interaction tests. Because config is passed in and not hard coded into the buil it just works. After tests pass the build can be promoted to production alias.

Requiring an internet connection for normal development seems a bit extreme. That rules out using it in many places in the world where the internet is slower or less stable, and even here, we have developers who work on their commute with no internet connection.

That's certainly true. Useful Lambda code (i.e. lots of functions cooperating to do something, likely using a variety of AWS services) can only run in the Lambda context. So it's not appropriate if you need to develop offline.