when i accessed empty shares all appeared to work, but once files started to pass a few hundred MB i started noticing things we're off.... 4GB files were copying, or the shared folder was smaller/larger than it should be. thats when i noticed it was actually storing some files locally.
When i checked into it, i found comments that the device uses an outdated sharing method that vista isnt completely compatible with - it does work somewhat with USB sticks, but it only works on HDD's in FAT32 mode, while the devices internal formatting tools insists on formatting to a linux standard. (so the only way to get shares working is to format the HDD in a windows machine to FAT32, before installing it into the airlive unit)
I bet if you try it again with a 2.5" IDE drive, you'll find as many problems as i did: the thing really only seems to work well as an access point, all the other features are extremely slow or buggy.