ok, you can have multiple install sources, they just have to contain the YAST package database, which you can generate according to this guide:
http://portal.suse.com/sdb/en/2004/02/yast_instsrc.html
disabling the internet source wont automatically enable the local dir..
anyway, im using the local dir because the stuff on the official suse site is outdated (like Gstreamer 0.6??, crippled xine, and lots of other missing\bad packages)