Earlier quoted context omitted.
You can actually have Windows logged in with a local account (normal old school account) and use the store with a different Live account. But yes, I am quite annoyed by them requiring that I use online credentials to log in to a physical computer. I prefer to separate the two authentication mechanisms.
That would be great - when I most recently tried to use it I was told by the dialog box that entering my Live credentials would convert my local account to the Live account, and I'd need to log in with the Live password not the local one.
In one case, I unsuccessfully tried to create just a local account in Win 8, because they had hidden it behind 3+ layers of "sign in here with your live account". I was sure that there must be a way to create a local one, but just couldn't find the right path.