You might be right. Usually are ;-) I just remember that's how it was explained to me when I was in Germany. The issue came up at a backyard barbecue of all places. It did seem to generate a fair bit of discussion; maybe Germans aren't clear on it either. Besides, as I'm sure you're aware, 'official' language policies aren't always successful.
On pronunciation: the eszet is always pronounced s, never z as a single <s> would be in *Scheise.
On spelling: why is the eszet retained? I thought after the recent reform its sole function was to indicate a preceding long vowel; and this is unnecessary after diphthongs, which have no length distinction. But I don't know much about the reform.