When you use smooth proxy, it automatically assigns a transparent material to the object. The point of this, is so that you can view the low resolution geometry, as well as the high resolution.

If you're using 2009 or 2010, you can select your low poly, and use the short cuts 1, 2, and 3 to do roughly the same thing.

1 - Low poly only
2 - Low poly cage with high poly
3 - High poly

Hope this helps.