Well, once the trans is in overdrive, the cable cannot be pulled out so that's not a problem. Once you hit the kickdown and it goes back to direct drive you can pull the cable out to lock the trans in direct drive. This was recommended procedure in owner's manuals of the day for descending steep grades, for better engine braking. When approaching the downgrade, briefly floor the gas to kick down to direct drive, pull the cable out, then back off the gas. Actually, the only thing to avoid would be pulling the cable out ('lockout' position) when freewheeling (foot off the gas at any speed below 27 MPH).
Your toggle switch may cause some problems. When you're running at highway speed with the switch off, the trans will freewheel whenever the accelerator is released. So you will have absolutely zero engine braking!
If you forget to turn the switch off when coming to a stop on an uphill grade, the trans is still in overdrive and will not, cannot, roll backward. The overdrive planetary gears are such that they physically cannot turn backward when in overdrive mode (like in two gears at once). This puts a bind on the gears that they were not designed for. Could get expensive!
Also, if the car ahead of you rolls back, you cannot get out of the way! The shift lever will not go into reverse. It is physically locked out by the lockout lever through internal linkage. (Ask me how I know!) I had a toggle switch too, until a car ahead rolled back into me. This, plus trying to start uphill from a stop sign in low overdrive convinced me it wasn't such a good idea.
40 Deluxe, are you saying that with the overdrive cable depressed, the car should not free wheel unless currently in OD?
By "depressed", I assume you mean pushed in. This position allows the overdrive to function but does not "engage" overdrive. Engagement is done electrically.
But let's begin with the car parked on your driveway with the engine off. Now pull out (rearward) the overdrive cable and go for a drive. The trans will operate just like a plain 3 speed standard transmission. The overdrive function is "locked out" completely. Next, push the cable in (toward the dash) and accelerate to about 20 MPH. Take your foot off the gas, and the engine will drop to idle while the car just coasts, or "free-wheels" because overdrive is not engaged yet. This is allowed by a sprag unit within the overdrive. The electrical part of the overdrive is off (or inactive) until turned on by the governor (usually at 27 MPH). Accelerate to about 30 MPH (or more) and let up on the gas momentarily. You will feel the overdrive engage, engine RPM will drop, and the car will no longer free wheel if you let off the gas.
Whenever you need more power for passing or climbing a hill, just floor the gas pedal. This turns off the electrical power to the solenoid and briefly grounds out the ignition, which allows a spring to disengage overdrive. You are now back in direct drive. After you're done passing or are at the top of the hill, just release the gas momentarily and you're back in overdrive.
So the only time the car will free wheel is if the cable is pushed in and the car is going slower than 27 MPH.