oh thats why! I was able to transform as knight to fish in water while inside the earth area, so I thought this wouldnt be the case. I guess the knight was bobbing up and down between earth and water so his state doesnt count as drowning or suffocating for a short time window?
Well you only count as drowning/suffocating after your bubbles all go away. If you were underwater and still had some bubbles left you could switch to the soldier.