You can shift normally. The lockout switch will automatically disengage OD when you are in a gear that doesn't use it, which on later cars is all but 4th. When you shift back up to 4th, it will re-engage. If you downshift to 3rd and don't want it back in OD the next time you shift up, just flip the switch and it will remain in standard gearing. No clutch is needed and you can flip the switch at any time.
Personally I would find a way to fit a lockout switch to allow 3rd OD. I can't imagine life without it! I only use 4th OD for highway cruising as it basically robs what little horsepower you may have left at those speeds anyway, so using it for performance is futile. 3rd OD however can give you a big boost in performance climbing hills where 3rd is too low and 4th is too high.