Hi Tony,
That's right. Those knobs are part of the expression system. From the outside, that's the ony visible part of it: 3 knobs. I think it's more elegant and much less invasive as a regular preamp (the well-know 'barndoor' in the side of a guitar).
However, it's the sound, ease and playability of the system which I like. It really is the best sounding acoustic pickup I've heard. It has none of that Piezo Quack.
Also, it's a linear system, which means that if you double the force of your playing, the output is doubled. If I did that on an old piezo system, the output would be quadrupled, because it's a square law device. That means that the expression system gives you much greater dynamics, thus ways to express yourself.
The preamp (designed by Rupert Neve!) is really quiet, with an impedance of a few hundred ohms as opposed to the thousands of ohms on most piezo preamps (hence the hiss on those systems).
Also, it's really easy. You don't need a lot of experience to work the system, because there is no notch, multiband EQ, Phase or other stuff. It's very feedback resistant, so no more problems. Combined with the Bose Personal Audio System it sounds absolutely wonderful and is almost impossible to get feedback problems! If you want more EQ, just buy the outboard K4 equalizer, which has multiband and sweepable EQ and a few other cool features.
There is one thing to get used to: the body sensors pick up almost any vibration in the guitar body, which means that you need to learn how to prevent that (much the same as a built in condensor mic). And the thing runs on AA batteries, which are cheaper to replace, but run empty sooner.
All in all, I think the ES lived up to the hype. I've had two ES guitars and both worked great! I'm very happy and satisfied with it. If you have any other questions, don't hesitate to mail or reply.
-Joost
ps: check out these links for more info:
Taylor Site ES info
and
Bob Taylor's ES announcement!