We're running SW v126.96.36.199 on our 4402 WLC and across all of our 1242 APs; 23 total, 9 running in local mode, 14 running in HREAP mode.
My understanding is, if the WLC is down, the APs will go into standalone mode whereby existing wireless connections will remain up, new requests for authentication will fail. That's fine.
To test this scenario, I applied the following ACL to the upstream switch the WLC is connected to:
10 deny udp host <WLC IP addr> eq 12223 host <AP addr>
5-10 seconds after the ACL is applied, the AP goes into Discover mode then eventually starts rebooting. Any device associated with the SSID/AP loses it's wireless connection.