this is becoming circular, and I think poorly worded rules are to blame.
I read "...transfer some or all of the sword's enhancement bonus to his AC as a special bonus that stacks with all others." to mean that it is a special enhancement bonus to AC, special in that it stacks with all other bonuses. Thus, the sword still has the same enhancement bonus, but instead of benefiting attacking and damage, it benefits AC.
You are reading it as the enhancement bonus dissapears and a "special bonus" gets added to the AC.
I believe that I am right for several reasons.
first - the paradoxes and problems that arise when the enhancement bonus acctually lowers.
second - in the table of bonuses that explains stacking, there are three enhancement bonuses: Attacks/Damage, Armor, Ability score. Every other kind of bonus is listed. There is no "special bonus".
third - enchantments don't just go away, then reappear a round later.
Examples of problems with your interpretation:
- You use the Defending ability as it's worded, using all of the enhancement bonus, which then makes the weapon +0, meaning it can't hold the Defending ability, and is totally non-magical. Paradox.
- You are fighting a mage, you win initiative and hold your action until they go. You see them beginning to cast a spell (dispell magic) so you pump everything you have into AC, your sword becomes non-magical, his spell has no effect, has no legitamate target, etc (rather then possibly disableing the magic of your weapon for 1d4 rounds). Problem.
- You get Greater Magic Weapon cast on your Defending Weapon. You pump all your regular weapon's Enhancement bonus into Defending (+1 to +5 AC), then the sword suddenly has another +5 enhancement bonus for attack damage. Problem.
- You have Greater Magic Weapon cast on your sword, toss everything into AC (+1 to +5), then since the spell puts an "enhancement bonus" on the sword you use the Defending to pump another +5 AC, so you have +10 AC +0attack/dmg. Problem.
- How do you handle a +2 Defending Flaming Longsword? The paradox above means that both defending and flaming stop if you put all +2 to AC? Or does Flaming still work? Defending? Another problem with the same paradox.
Problems with my interpretation:
You can get a bonus to AC and still get through damage reduction.
Well guess what... the wording on Damage Reduction says that your weapon needs an enhancement bonus of whatever to work... there's three kinds of enhancement bonus - attack/dmg, stats, and AC... so if you had a Longsword of Ogre Power (custom magic item, normal longsword but with a +2 enhancement bonus to STR) then I guess you can break through damage reduction of x/+2 or less if you want to be really picky about it.
Also - the sage's ruling agrees with my interpretation and does not with yours. I think I have fairly well explained the reasoning behind the ruling, if you can't see it then I guess you just can't.
Anyway, I think I'm right, you think you are right, I doubt either of us will convince the other.