I'm one of the guys that had the mechanical spring preload adjuster break and just spin. The shop broke that for me....Think of it as 2 different systems. The preload is that collar on the shock, top of it, and is strictly mechanical. There is nothing electronic about that part of the shock. There is a wire that goes into the shock on the bottom but that is for the internal valving only, not the mechanical preload. While the two systems are independent from each other, they work together. The top preload portion can be completely removed from the shock once the spring is removed. It fits in the palm of your hand and is not sold separately at the dealer in the parts fiche.
The wiring going into the shock is to raise and lower a (for lack of better words as I don't know what to call it exactly) needle and seat type setup like you'd find on any carb. This change in height allows for more or less flow through an orifice, as the needle raises more flow, as it lowers into the seat less flow. That changes the rate of compression or rebound, maybe both. I'm sorry I just don't know that.
So my opinion on this is for you to accurately set sag the key has to be on so the valving is not set in the closed position. If in fact that is what happens, I don't know where it "sits" key off but you do want to know it can flow through that orifice when you are on the bike making those sag adjustments. Key doesn't have to be on to mechanically change the height of the collar which in turn raises and lowers the bike, but why would you want to do that and fight against the "possibly" closed internal valving system to get an erroneous reading on sag?
I am not an engineer, I'm a parts guy for Audi/Porsche parts so I am familiar with parts diagrams and like many of you here have worked on carbs, suspension and engines as a hobby for a long time. I've never seen a blow up of the internals of this shock, but from taking it apart and from what I know about suspension and front fork valving, carbs, etc, this is how I understand our electronic DDC system to work. I have put it into terms that I'm familiar with using to describe the system as I know it.
So when the dealer says the key has to be on or things will break in the rear suspension, I think that's incorrect. If they say it should be on to accurately set sag adjustments, they'd be correct. The strange thing is when I've jounced the rear of my bike key on and key off, I don't really notice much difference other than it's stiff either way. Or I'm a lightweight!
I hope this helps describe the system a bit better for those that have never dealt with it at all. Suspension tuners that read my description will probably laugh at how I did it but hopefully shed light on it to make it better!