It does "need to be on" in standby mode to receive guide and software updates. If you unplug it, you will be doing a "hard reboot" every time you start it up which could involve what seems like a substantial waiting time to get a guide update.
Heat is an issue only if you do not have adequate ventilation space on both sides. You can use supplemental fans to keep the box cool, but then noise starts to be a problem.
If you truly turned it off, via power strip or other means... then you would not get nightly EPG updates so your guide info would be horribly out of date quickly. You also would not be able to schedule any timers to record anything while it is off... so you'd pretty much be invalidating much of the value in having the DVR.
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