Is it true these can fail with a no air condition as opposed to free flowing?
Well, I believe any reg that has a diaphragm problem could potentially give you a no air situation, as I believe it is the activation of the diaphragm that allows a reg to operate.
The problem is with the pilot, you are not only going to get no air on inhalation, but just to keep things exciting, you are probably going to get a mouth full of water. The pilot is unique, as the diaphragm also serves as the exhaust valve. If you were to look in the bottom of the pilot, you would see the whole thing.
There is a small metal clip that holds the combo in place at the bottom of the diaphragm. If the diaphragm is not properly seated, or the clip becomes dislodged, once again allowing the diaphragm to become unseated or to move about, I believe you could get a mouth full of water on inhalation. Also as was previous stated, spraying the diaphragm with silicone might not be the best thing to do either.
And I also believe if the pilot had a separate exhaust valve, at least the mouth full of water would not happen. If a problem arose with the diaphragm in a conventional reg, you simply would not get any air.
Which unto itself might prove to be a nuisance to some.
But I am in no way a tech, so these are just my theory's.
Remember, it takes many swipes of an ax to drop a mighty tree.
In the pilots case, this was just one.