Every Michael's I've been to that sells SWS has a knitted swatch and a felted swatch of it hanging. So it seems that it does felt. The swatches still show the stitches--but I think that's lazy felting on the store's part rather than the yarn. Because even felted swatches of 100% wool they have hanging up show stitches, and I've felted enough to know that you can get those stitches to pretty much vanish.
I think I'm going to make entrelac pillows with my SWS
and I've seem some swatches with really nice striping. Good luck!