A transformer also can't do anything to control or eliminate spikes or drops in the power, it will simply reproduce them on the output side.
Quite right that an iso tranny won't do anything for power sags, brownouts, dips or cuts. For that, you need an auxiliary source of juice. However an iso tranny offers excellent protection from spikes.
I've been using isolation transformers from Hammond, Deltec, Magnetek, Xentek and Topaz with digital sources, preamps and amps for five or six years now. The improvement the OP mentions is always there to a greater or lesser degree, depending on the quality of the gear, and even non-audiophiles can easily hear the difference. I even think that an isolator of proportional value should be part of the budget when you buy a digital player or transport. I have not heard a single player that did not benefit, up to my Esoteric P-10.
If you want more comments on the use of isolation transformers, look up posts in the archives by Sean and Lak.