I think they can bite at their tails once in a while and just be playing. It doesn't sound like Wally is chasing his tail, at least not the way you describe it. When I think of a tail chasing dog, I think of one spinning in a circle trying to get his tail. He or she may catch it once on a while, but goes back to chasing for several minutes. I've seen dogs do this.So, they can't chase their tails because...they are just being silly?
I mean, Wally sometimes snaps back and grabs his tail, then looks at me and starts barking or wagging his tail with what I thought was a happy/let's play! expression...