Yes, it is very strange behavior. The LED sequence I see when the WiFi router is missing (smartphone with mobile hotspot many miles out of range) is:
Blue Magenta Off White Flashing Yellow Green Repeat
This loops over and over and the REACH never produces its own WiFi AP.
I have two units both ordered at the same time (same hardware revision, whatever that is). They are running REACH v.1.2 (and were updated exactly once from whatever version was on the units when they shipped, which I believe was 1.0.1 or something like that). Yes, they both behave the same way (successfully connect to the one remembered external WiFi network if that network is available, but refuse to connect to anything else and refuse to create REACH WiFi AP otherwise).
I do not own a USB Ethernet adapter yet, so I have not tried reflashing.
I will check to see if they remember my home WiFi router for some reason (what they were updated with) per this thread: Resetting WiFi, but my home WiFi router does not list them as being DHCP clients.