You're absolutely right. It's nothing like that.
There is, of course, a slightly increased risk in that Windows is no longer asking "are you sure?" every five minutes and just getting on with it. However, this is almost certainly mitigated by the fact that most Vista users will by now have developed an involuntary twitch which unquestioningly agrees to the UAC dialogue every time it appears, rendering it pointless anyway.
All other UAE-underpinned features remain intact. Applications will run in a non-elevated state by default, file and registry shadowing / virtualisation will continue to work, and you still have Protected Mode available in IE (which I'm assuming is what you're referring to with your 'sandbox' comment).
Disabling UAC breaks all these things. But we're not doing that, we're just telling it not to ask so many questions. In so far as we can with Vista, we're telling it to behave more like Windows 7.