The identity system is now on Ethereum. It has always been the least innovative or sophisticated part of the project, but the one requiring the most trust, so parking its root on Ethereum (at least for now) is a pragmatic choice without many drawbacks.

As far as I understand (not too far), individual Urbit nodes can still function independent of the Ethereum blockchain. Their parents can feed them the subset of the Ethereum/Urbit PKI graph that they need to validate any signature. The blockchain is only required if the node wants to personally verify that an asset hasn't been double-transfered to multiple parties in different forks, and don't trust their parents to have ensure that. This is a strict improvement over the older Urbit model, where you had to rely on your parents to relay that information.

The actual network and computing layers are still distinct from Ethereum, and have no knowledge of it outside of the identity system.

It's a neat project. I'm glad I won't need to make disclaimers about Curtis the next time I introduce it to someone.