I am curious can SwitchOS pass VLAN's through to other Mikrotik switches running SwitchOS as well, or does the main switch need to be Layer 3 in order for that to work?

God, I hope so! I am running VLANs on every one of my Mikrotik switches. I have five MT switches here at home, and lots of VLANs. I would hate to find that what I have been doing for years doesn't work :)

Haha, no wonder California has power issues, K6ccc ur hogging all the power! ;-)

VLAN is layer 2 technology, no need L3 switch.

VLAN tagging is standardized (IEEE 802.1q) - it wouldn't make any sense for Mikrotik (or any other vendor) to reinvent the wheel.
Also, SwOS relies on purely HW-accelerated L2 processing - the switch chip takes care of all VLAN tagging/filtering, ACLs etc, and the small external ARM (or other arch) CPU is used only for the trimmed down Web GUI, configuration management, maybe SNMP as well (it's definitely not running Linux).