Is having recommendation letter writers from the searching institution valuable?
1- The seminal point in the effectiveness of a letter of recommendation is neither the affiliation of the recommender nor his relation to the university, in which you are keen on applying...

The best letters of recommendation have always been composed by fellows, who know the applicant, deservedly, to count his/her personal and scientific characteristics and to pinpoint the unique factors, could which be effective to distinguish the target applicant among the others. Now, if you take a letter of recommendation from someone attending in the target department, where he/she could not reasonably convince the reader upon his knowledge about you, the weight of the letter would not be high. Instead, your contentment to give a letter from one of your resident professors might be more influencing, as they would assess you, in a better fashion.

2- Explicit distinction of an applicant's case would be more assuring, because that "faculty discussion" maybe will not happen on the right time to be fruitful for you. Therefore, you better to stick to the more reliable choice, i.e. explicit letter of recommendation.