Please forgive a newbie question...

I've read in a number of places that a circuit should always have
transformer isolation from the wall AC, even if the circuit needs only
120V AC input. Then again, a number of people have told me that it
really doesn't matter. That the only reason to use a power transformer
is to step voltage up or down... if the circuit needs 120V AC, there's
no reason to use a transformer.

I'd really like to understand this issue, and I haven't thought of any
compelling advantages to having a transformer in the power supply path.
With audio transformers, I see how removing DC continuity can prevent
stray ground current, but I don't understand what isolation is gained by
using a 1:1 *power* transformer.

I've heard it said that if a power transformer is not used, that the
chassis of the device will be "hot." Does that make sense to anyone ?
If I'm using a 3-prong AC connection, I'm wiring my chassis to safety
ground, so as long as the wall ground connection is properly wired,
isn't it impossible for my chassis to have any voltage on it relative to
ground ? (And if the wall safety ground is miswired, doesn't any
circuit become potentially unsafe, regardless of its design ?)

If I use a 1:1 power transformer, and thus have no galvanic connection
to the wall hot and neutral, I still have high DC and AC voltages in my
circuit, and my chassis is still connected to the wall safety ground...
there are plenty of ways a user could get a serious shock by touching
things inside the device. And the chassis is only safe to touch if the
house AC ground is wired properly (otherwise a circuit fault or AC
polarity problem could result in voltage on the chassis) and if you
aren't simultaneously touching some other high voltage source (at which
point, the chassis just becomes a path to ground). This is true
regardless of whether or not there's a power transformer, right ?

The only safety advantage I can immediately see from the power
transformer is that it makes it impossible for DC currents to flow to
the neutral wall connection... is that a significant advantage, or am I
missing something here ?

Thanks for any explanation! There's probably a good explanation for the
convention of using 1:1 power supply transformers, and I'd really like
to understand it!

James