For a while I hosted a server for some friends that used TLauncher, turning off the "online mode" was indeed super simple! Then they also got the proper copies from Microsoft and I could just change the configuration setting, and we could all play with the proper accounts, although if I recall correctly they lost their old items and such, because those were considered different player IDs and whatnot.

Not condoning it per se, but the game could be way more draconian in its implementation of auth.