Does it affect tone only when the pedal is on or when its off to?
In "theory" a non-true bypass pedal would effect the tone on or off. With one or two pedals I don't think the change would be enough to worry about. You would need a fairly long signal chain of pedals to create a buffer that would be noticeable. There will be the naysayers that will tell you there is a huge difference. I guess their ears are so good they can tell the color of a dog by its bark. The average ear is not picking up the difference.

now you can get back to enjoying your blues driver

 That being said, I bet he didn't have a Fuzz Face, Uni-Vibe, Octavia and Wah all connected and bypassed when he recorded Little Wing and Castles Made of Sand.
  That being said, I bet he didn't have a Fuzz Face, Uni-Vibe, Octavia and Wah all connected and bypassed when he recorded Little Wing and Castles Made of Sand. 
Yes, the issue comes when you have garbage bypass like in vintage MXR pedals and some Electro Harmonix pedals. Even when "bypassed" they are loading your signal and definitely are affecting your tone. In cases like this, True Bypass IS better than the alternative. With modern buffered bypass pedals there are still design considerations that can make a pedal sound better or worse bypassed. Ideally, a good buffer early in the chain, then a bunch of effectively bypassed pedals (True Bypass or a good buffered bypass) should give you the "best" tone.
Now, players like Buddy Guy and Santana use a long cable because they LIKE the effect of a higher capacitance cable on their tone. Jimi used a coil cable and pedals with very suspect bypass and a lot of people love his tone.That being said, I bet he didn't have a Fuzz Face, Uni-Vibe, Octavia and Wah all connected and bypassed when he recorded Little Wing and Castles Made of Sand.
In the end, the real answer is, listen and make up your mind what YOU like best for your guitar tone.
 All about opinions, because there aren't many that agree with me!
 All about opinions, because there aren't many that agree with me!there's a lot of myths and misconceptions regarding true bypass. It's kind of ironic, Everyone seems to think "all my pedals NEED to be true bypass to keep the integrity of my tone" whereas the truth is the opposite, a good quality buffered pedal early on in your chain will keep the true integrity of your tone better than having only true bypass pedals.
