basically now the volume pots and tone pot aren't affected by the switch at all and is always routed to the output jack? Which means the switch is solely responsible for activating and deactivating the preamp
The switch does its same job of determining whether the passive signal or the preamp signal go to the jack. You are not changing any aspect of the wiring except for adding a tone control.
As a side note, that's a horrible way to do active/passive switching, but I guess that's how Fender does it.