There are two parts to my understanding of the answer.
1. Is Internet REQUIRED. Yes. Internet is absolutely required. This is because the connection is negotiated through Slingbox servers.
2. Does the video stream pass through Slingbox. NO. Once the connection to the stream is established, it does not appear that Internet is necessary. I have not tested for a heartbeat to keep the connection live, but definitely, the stream does not flow out of the home network. [My configuration is remote and is unable to support a video stream outside the home network. Viewing the sling stream is fine within the home network.]
Note: One can watch the slingbox within the home network even if the router is not configured for viewing on the Internet