Worked for me... Mountain Lion 10.8.1.

    1) Opened TextEdit
    2) Started a document
    3) Closed document (Cmd-W)
    4) Switched to Chrome
    5) *poof* TextEdit disappeared

exactly what i did. maybe it was changed in ML.

No, Lion exhibits this behavior for me. Close last TextEdit window, switch to another app, see TextEdit silently go away from the dock.

how long do i need to wait to observe that behavior?

It's immediate. Doesn't happen on Snow Leopard, for me.

The TextEdit behavior might actually be the OS silently closing an unused application that implements the necessary hooks for saving state and indicating when clean-up is required on termination. That behavior was introduced in 10.7, but IIRC, can be disabled by the user.