Well the schematic says 2V5 but the part is a 3.3V regulator - that might be just a schematic error and it's a 2.5V part fitted. It's low drop out regulator so with low load, it could have 3.3V in and basically the same out. It's also labelled as 3V3 on P1.

All the switch does is connect the battery.

If in position 2-3 there really should be nothing on pin 3 of U4 assuming that's the entire schematic the the "ON" net is entirely within that dotted line.

If this is not the case, the schematic is wrong or perhaps U4 has failed due to having a voltage applied on its output and pin 2 is somehow shorted to pin 3.