Yes, that's the bit that detects your steering input and applies hydraulic pressure to correct, if you remove the hydraulic pump and fluid then that bit won't function and you'll basically have a load of slop until the input side hits the safety stops.
Any time you're making small inputs or changing direction, etc, you'll basically have a small area where the steering is only connected through a tiny spring. You can imagine what that does to accuracy and feel.
It's not an issue when it's powered because the hydraulics are working with you and the input forces at the wheel are far lower.
You're also better off popping the seals out of the end pistons rather than looping lines, as whilst the friction isn't an issue for the hydraulics, it adds a considerable amount to the handwheel forces without them, and they also damp and reduce feedback and feel.
If people have just been looping lines when trying to de-power a rack that explains why most people think it's been crap, they've done a half-arsed job.