It works fine so far. I think its unpacking thw swim to install partition first and then runs from there but haven’t looked into it to prove that is what it is doing. Haven’t tested with server 2016 yet.
I was able to do some testing today. My suspicion is correct. Setup.exe dumps the swim files on to target partition and then applies the image from there only after the copy of all the swims have completed. As you would expect, this increases the amount of time to image a machine because it does not unpack directly from the storage device. The "apply" does not happen until the entire copy of the image first. However, this method allows me to leave a new machine bios untouched. I do not need to disable secure boot or uefi mode to boot from the usb and apply the image.