You can check out what the S1 switch does on the American Jazz Bass in this pdf document:
http://www.fender.com/products/s1/pd...ss019-3400.pdf
With the switch up, it simply acts like a regular jazz bass. The pickups are in parallel with each other and have independent volume controls, and when you have both at the same output the circuit is hum-cancelling*.
When the switch is down, it acts a bit differently. The pickups are in series with each other and their output is controlled by a single volume pot, the second volume pot is not functional. The circuit is always hum-cancelling*.
[* assuming both pickups have the same output level]
If you want to replace the pickups, you can use any kind of passive pickups (active would require a 25k-ohm pot instead of the assumed 250k- or 500k-ohm pot the S1 switch is built in with). The only real issue is to maintain humbucking by using pickups with the same output levels. You could also have some fun with the wiring to acheive different sounds than the stock setup with the S1. I'm not sure how many poles and throws the S1 switch has... can you check on your particular instrument? (Does anyone know if the Strat S1 differs from the Jazz/Precision/Tele S1?)