> Clearly it can't update if it can't talk to google but why shouldn't it be able to play local content or stream netflix without talking to a particular google IP?

All cast apps & authentication are provided by Google's servers. Once it begins streaming from Netflix then Google isn't involved, but they handle initiation of that connection. Same for local content. And they don't exactly need to hijack DNS to figure out that you're watching Netflix after they launch the Netflix app.

And they know when streaming stops. Hence why it switches back to the slide show screensaver when you leave Netflix stopped for a minute or two.