After reading the Cisco documentation, it seems that the Lightweight AP's are reduced to ceiling/wall decorations when the WLC is off the network or otherwise unreachable. Is this true? Do they provide for no client connectivity whatsoever if the WLC fails? Does all client traffic pass from a LAP to the WLC before being sent to it's destination? In particular this is in regards to 1142n APs and an 5508 WLC.
it seems that the Lightweight AP's are reduced to ceiling/wall decorations when the WLC is off the network or otherwise unreachable.
Not entirely true. Depending on your design, you can configure H-REAP.
H-Reap Design and Deployment Guide
H-REAP Modes of Operation Configuration Example
Hybrid Remote Edge Access Point (H-REAP) Basic Troubleshooting
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This would be correct. If the WLC dies your LWAPP access points lose connectivity as well and become ArtCisco. There is mode calle HREAP which allows for local switching if teh controller fails but this is used mainly for remote offices. You can read more about HREAP here...
Traffic orginating at the LWAPP ap is sent to the controller for LAN distribution, correct.