Sorry it took me so long to respond - between trying to prep a house for sale, working, and working on a master's degree, I have very little time for stuff that's actually fun...like these boards! Hope you're still out there to read this, skylark41!
The distortion circuit is really just a three-way switch that connects two germanium diodes between the positive and negative sides of the output jack in one direction, a neutral position, and two silicon diodes in the second active position. The diodes are connected in opposite directions in parallel across the output. They cause a sort of 'clipping' of the signal that provides what I think is a pretty cool distortion sound. The germanium and silicon seem to have a slightly different sound and after testing them I decided I liked both so made my switch with both types. I haven't seen anyone else do this, so far. I have seen some passive switches that had one type of diode or the other, but not both. The main thing is, you need fast switching (Schottky) diodes with very low voltage drops - germanium is .3 volts and silicon is usually .6-.7, but I have found some silicon diodes down in the .25 volt drop range. The other thing is that in order for the clipping to happen, you need hot pickups - usually humbuckers - in order for the effect to be usable. I tried some tests with alligator clips and the Skylark and loved the sounds I got, especially when you factor in the coil tap and phase switch sound colors. Now the sound is just that much more flexible.
I'm not sure what value caps he uses, but I'm very pleased with the quality of the Varitone switch Stan Hinesley made for me. The parts are first rate and he uses both a choke and caps so that his varitone is a true notch filter, rather than cutting out a much wider range of frequencies like the all-caps designs do. I couldn't even find a decent switch or choke locally at any price. For 40 bucks I just didn't see how I could go wrong. You might want to check out his site at
http://www.stanhinesleypickups.com/passive_controls.htm - he didn't pay me to post that, either.