From what I recall, The LOCAL position simply disconnects the serial data in/out from the interface board (current loop or whatever), and then connects OUT to IN (internally). I seem to recall that the keyboard (and optional reader) and answerback drum are pretty much always connected to the distributor, such that pressing a key will always activate the distributor and you should hear the distinctive "buzz-whirr" of it "sending". I also seem to recall that the typing unit and optional punch are also connected to the receive mechanics. When the START bit begins, it should engage all the mechanics to assemble the data bits into some mechanical positioning of the bars and then a "print" is done on the STOP bits. The noise of the printing usually drowns out any noise from sending.
So, to my recollection, if the receive line is stabilized (so no noise is present) you should hear nothing but the spinning motor in LINE mode, and pressing a key should result in that buzz-whirr noise of the distributor. If it is not working in LOCAL mode, you might need to go to LINE mode and first determine that sending is working, then trouble-shoot receiving.