for an extra 300 you could of have gotten a fender custom shop 'Custom Classic' strat in a 3 tone sunburst with rosewood fretboard
your right but I'm a bit of a Bells and Whistles kind-a-guy.
Elliot,
No the S1 switch is not reliant on the pickups, their two separate features. :)
Mostly you notice a bit more out signal boost/thikcness... like comparing a humbucker to a single coil. in positions 2 and 4. Basically it allows the pickups to change from parrallel to series connection. a few other combo's like 3 pickups on at once in position 3.... but their pretty useless/pointless.
They call it the "special capacitor" but I dont know whats actually special about the capacitor.

heres the picture of the piece of paper that comes in the case.