Jon,
I also just purchased Barry's book which is AMAZING.
I have to agree!
since my layout is so small, do I really need to use external power of my switches?
Yes, you should.
Will it really be that detrimental or can I get away with it?
You might and you might not. Why take a chance?
Along with that, I'm using a Z-1000 power pack for the layout which has an accessory port built into it. If I HAVE to use external power, can I just use that port for the power connected to a terminal block?
Yes, the accessory port on the Z1000 is fine.