Yes. Having it "turned on" (blue led lit) is what prevents connection. When I looked at what was being displayed as a "screen saver" there was a warning about it being watched remotely. It also said that if you pressed Select it would disable remote watching.
Having TV2 recording was not a problem. I could still watch it. In DRA, I was able to watch a recording on the DVR while TV2 was recording, and while TV1 was displaying a recording.
If you got a message that it was being watched remotely, it was connected.
Blue led being lit means nothing more than it's in Dual mode.