Thank you tcellguy and QuarterSwede for your assistance in clearing up how exactly iTunes Match works on the GPS S3. I sold my S1 and my S3 GPS arrived yesterday. Updated to 4.1 and praise Jesus, my entire iTunes Match library is now available to me on my wrist. My Jaybird X3's are connected to both my AW and iPhone.
It's ridiculous that I had to buy a new Watch to get this feature back. I hope for all you S0-S2's out there that this will eventually come back in an OS update. But my gut says it won't be anytime soon. Perhaps OS 5.