My understanding is that any DAW hosting the Motif XS rack VSTi must have the DAW's audio driver preferences set to use the FW16 (Windows 7 in my case) ASIO driver. Is that understanding correct?

That's correct. The FW16E is an audio interface, different in that it installs in the keyboard, but this is so you don't need all those analog cables. An external audio interface with an equivalent capability would have to have 16-inputs and 6-outputs, and then you'd have to have sixteen (16) 1/4" Outputs on the back panel of the Rack XS and then you'd need 16 cables to connect it.

But by placing the FW16E in the Rack XS all that output routing can remain in the digital domain and travel via FW to the computer. So yes you need to use the Yamaha Steinberg FW Driver to transfer audio on the 16 Rack XS FW buses. There is no other way to get 16 Outputs from the Rack XS.

Thank you for your quick response.

I already have a (Live 9) DAW setup. I could put a Motif-rack XS right next to my MU100r and run similar analog cabling (plus MIDI). But I'm very interested in the higher digital channel count both in and out of the rack-XS via the FW16E. However, it appears in order for me to pull off that digital arrangement, I would need to employ an "audio bridge" application to bind to the YSFW driver and convert the audio channels to/from the rack-XS over to Rewire channels so Live 9 can integrate the Rewire audio with the rest of my system. (for one example, FLStudio should be able to connect to the YSFW driver and convert the rack-XS's audio to Rewire input/output)

I asked the question I did because I was kind of hoping against hope that the rack-XS's associated VSTi could address the YSFW driver directly while Live 9 continued to address my other ASIO driver.

Are there any plans to offer a Dante protocol (digital in/out) expansion card for the Motif-rack XS?