As in your demonstration:

If the density of the block is .25 and all the other initial conditions are the same,
the block leaps into the air.  The lower the block density, the higher into the
air the block goes.

The rotating exchange section divides the two tubes so that the pressure at the
bottom of the water filled section 1 never interacts with the air filled section 2

In Figure 3c:

[img width=500][/img]

You can see that when the section has rotated to this point the red sections are not
connected to either fluid filled section 1 or air filled section 2.