I don't know your code. Here in California, it MUST go outside, and the line must run continously downward, no bellies. There is an exception, and in some cases they will allow you to put a Watts 210 hi temp gas shutoff on the tank, and a pressure relief valve on the outside of the dwelling. This would probalby not be allowed at all on a tankless.
I would take another look at your installation instructions, as it doesn't seem right that they would use iffy language to the effect that you "might not really need it". The local code and inspector would have the final call on that, in any event, so check with them.