I think you're misunderstanding the use of the transparency switch. Think of it as having a track matte at the bottom of the stack. In other words the layers below your layer with transparency turned on are the ones that set where the mask is. You would want to place your shape layer at the bottom of the stack and turn transparency on with the layers above it.
yeah, it appears that I still have to create a pre comp layer to make it work, and that sort of defeats the purpose.
maybe that can be a new feature, because right now it doesn't really offer anything to enhance my workflow.
I use the transparency switch all the time. Creating a Pre-comp should not be looked at as a hinderance. It's a very valuable and useful tool that will simplify most aspects of many projects. Judging from your timeline shot there should be no problems caused by a pre-comp.
Read the manual a little more carefully. You'll find the topic under the heading Transparency, opacity, and compositing > Alpha Channels, Masks and mattes > Preserve underlying transparency during compositing. The first line states:
The Preserve Underlying Transparency option causes a layer to get its transparency from the transparency of the composite of the layers below it in the layer stacking order.