Level Attitude,
The quote from CAP804 is on page 34 of the PDF (Section 1, Part B, Page 10) - Validity of Licences. I know that CAP804 is not law, but the CAA's definition in CAP804 does tie in with Part-FCL and Part-Med (and the ANO for UK CAA licences).
The Licence remains valid, but its (EASA) privileges are suspended
If the privileges of a licence are suspended, then the licence becomes an expensive piece of paper that you cannot do anything with. So it is no longer a valid licence as required by the FAA.
FAA 61.75 states that the piggyback license:
(3) Is subject to the limitations and restrictions on the person's U.S. certificate and foreign pilot license when exercising the privileges of that U.S. pilot certificate in an aircraft of U.S. registry operating within or outside the United States; and
If your EASA licence has a limitation of privileges due to a non-valid medical then these apply to the FAA certificate. The above paragraph would also apply if you don't have a valid rating for your EASA/JAA/CAA licence. A US BFR is not sufficient on its own.
As for MED.A.020, the word "shall" is used. You
must have a valid medical if you have a PPL. The two are intrinsically linked - you can't have one without the other. This is the same for UK CAA licences - CAP393 (the ANO) states "A medical certificate forms part of the licence" (p76). So no medical = an invalid licence.
From what I have read previously, the European model of the medical certificate forming part of the licence is different to most ICAO licences - which is why I think the FAA is giving out advice that an FAA medical is sufficient. For anyone outside of Europe it most likely is. I wouldn't expect an FAA employee to know the regulations of every civil aviation authority worldwide.
If somebody had an accident in the US flying on a piggyback licence I think it is highly probable that the NTSB or FAA would contact the UK CAA to check the validity of the licence. It could have been suspended or revoked for other reasons, and the FAA would want to check. If the medical is not valid, what do you think the CAA's response would be? Licence valid or not valid?