Yes, live rock is absolutely necessary. The "live" part refers to the bacterium that reside within the porous structure if the rock. All rock will, over time, become "live" but it is beneficial to kickstart the process by adding a few chunks of purchased live rock. I've always started with 97-99% dry rock (think Marco rocks) and "seeded" with a chunk or two of live. A good rule of thumb is anywhere from 1-2 lbs of rock per gallon of water.