An isolation transformer does several things, of which eliminating ground loops is just one. It does that by isolating the secondary neutral from the safety (earth) ground as John stated.
But it also attenuates noise and transients. It uses inductive coupling and a faraday shield between the primary and secondary, which reduces capacitive coupling and attenuates higher frequencies (which, of course, reduces transients, which are just single impulses with a slew rate similar to high frequencies).
It also isolates the secondary from common-mode currents on the primary side.
And most of them also provide surge protection. My Tripplite has MOVs for that purpose.
To get the full benefit of the ground loop isolation, one must use two-prong plugs on the secondary side, which requires that the devices plugged into it be double-insulated. Audio stuff generally isn't, and plugging its three-prong plug into the outlet re-establishes the earth ground on the secondary side.
I bought it thinking the 60-cycle hum in my phono chain might be a ground loop (all the audio connections are single-ended) and it had no effect. The Thorens wall wart does not have an earth-ground pin, so it took advantage of the neutral-ground isolation. So, I don't think the issue was a ground loop, or common-mode currents, or high-frequency noise. But it only cost a little more than a decent surge suppressor and it can't hurt.
Of course, there are lots of other possibilities. In the end, I just implemented a 60-Hz notch in my Yamaha PEQ and poof!--the problem went away.
The Tripplite unit is rated for <1% THD output.
As said already, it still depends on the storage capacitors in the equipment power supplies to filter ripple from rectification and lower-frequency noise, which all happens downstream of the isolator in any case. Those capacitors are needed even with a regulator, just to help control heat in the regulator device if nothing else.
Rick "whose preamp has a LOT lower noise floor than 1%" Denney
