You may have corrected your diagram. What I see with a 1:26pm time on it looks like a correct on/off switch. When the switch is closed and stays closed, the microcontroller turns on and goes through a reset cycle. When the switch is opened, the microcontroller immediately turns off no matter what it's doing. Like most switches, your on/off switch probably bounces a bit. Usually the reset cycle takes a little time, often more than the bounces, so this bouncing may not affect the microcontroller. When the switch is turned off, the switch will also be bouncing, but the microcontroller will be trying to complete a reset cycle and will not likely complete that before the switch stops bouncing.
If you have sensors attached to your microcontroller and these are not running off the microcontroller Vdd / Vss lines, you can damage the microcontroller if the sensors are powered when the microcontroller is not powered.
This sort of thing applies to any microcontroller including the Stamps and the Propeller. The Stamp module has a filter capacitor across the Vdd / Vss power lines which would avoid the bouncing issue.
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