Section 4.4.8 says that parameter entities need only be "included if
validating". Note that it doesn't limit this to external PEs.
The well-formedness constraint [WFC: Entity Declared] on production 68
is consistent with this:
In a document without any DTD, a document with only an internal DTD
subset which contains no parameter entity references, or a document
with "standalone='yes'", the Name given in the entity reference must
match that in an entity declaration [...]
But the corresponding validity constraint [VC: Entity Declared] says:
In a document with an external subset or external parameter entities
with "standalone='no'" [...]
If it's really intended that non-validating processors need not expand
references to internal PEs, then "external parameter entities" should
be changed to "parameter entities".
As it stands, it appears that it is both well-formed and valid for
entities not to be declared in documents with standalone="no" that
contain internal PE references but no external ones!
-- Richard