This is how I understand it, and hopefully someone else will correct me or better explain if needed, but basically the ISO does not contain any Docker images. But when running config_controller, it needs to have Docker images to deploy Kubernetes. So those Docker images have to come from somewhere. So to answer your question, yes, you do need an internet connection at some point to get the Docker images.
There is the option to 1) use a Docker proxy or 2) use a local Docker registry as an "alternative registry", ie. offline or "air gapped." Though I'm there may be a bug in option #2, and option #1 still requires that the proxy has access to the images somehow (generally the proxy is used as a cache, and the proxy itself still has access to the internet).
Basically, I don't think it's possible to have StarlingX without Kubernetes...it's not an option any more. That's a major design decision the project has made and in many ways is a key feature of StarlingX. I don't think you would want to avoid it even if it were possible. :)
Thanks,
Curtis