If you mean am I developing on the same machine ERPNext is being served from, I am not. I SSH into the server. I do have complete control of the system.
As for me my development is in my local laptop so no need to bench update every time I change python code to see the changes. After a bunch of updates I push the changes to git and do a bench update in the production server to get the changes.
I am local then. I write the files directly to the directory on the server. Even then I still have to run bench update. If I delete the doctype.pyc file I would expect the system to use the doctype.py file but this does not seem to work. If I just write the PY file the server does not see the change until I run bench update.