Section 4.3 OSPF Stub Area - IEWB Vol 3 v4.1 UPDATE
Well, I guess it was too late in the day (or too early) to allow me to think clearly. I realize now where my mistake was. SW1 can in fact use F0/21 as a routed port as long as there is a layer 2 path all the way to SW3 over the trunk between SW1-SW2-SW3 which definitely exist from my previous trunking configurations in Sections 2.2 and 2.3.
I can't believe I didn't catch this! I guess it pays to have rest.
Sorry for the post.