Not neccesarily. You only need 17 pins for the dac. (using the analog inputs as outs).
Yes... if you want to use up all the pins in the arduino. That kinda makes it a bit limited. Say you wanted a function generator that could work without being connected to the computer.
My comment was also referring the possibility of using the external memory bus. With which you could put in a bit more RAM/FLASH/EEPROM and have even crazier waveforms going on, that is if you create them using tables.
I wouldn't go for that though... most of the functions on the function generator can be programmed as a proper time-based function, that would make it far more flexible with better results, although it would be a bit tricky to implement.