Exactly right. And even if the FMS "thinks" that you are somewhere else, both vertically and laterally, this does not affect the airplane at all. You could program in a flight from Beijing to Hanoi and then fly from San Francisco to Seattle and the plane would just fly perfectly (although you would need to disregard all information on the CDU´s and fly VOR-VOR).
The FMS is just an "aid" - but not a required device like the FMGC on the Airbus fleet. In fact it is perfectly legal to fly the 737 with the FMS (and even the AP!) totally failed.Sure, some restrictions would apply (RVSM, RNP-1, CAT I only). It may also be an interesting fact that it is not legal to base your fuel estimation on the FMS - it is purely an additional information device.
So even if your vertical path is totally haywire, as long as you fly the vertical profile in a selected mode and verify that the magenta line makes sense (no huge extrawide turns due to erroneous radius calculation) you are fine.
Jan