Locaiton data is sent by the ACARS system, which was apparently turned off.
Radar operators have a hard job telling a plane from clouds or echos. A transponder makes that job a lot, lot easier.
However, if you have a good radar system, you can happily track the contact without a transponder. In fact this happens all the time, I had a very nice chap at Farnbourgh West LARS (Low Altitude Radar Service) do this for me, when the shed I was flying had a little bit of a failure. For newewer systems such as those used by NATS automatically keeps the data assigned with the trace, using their proprietary algos to filter the noise.
If this happened over the UK, the transponder went off, ATC couldn't reach them, then a couple of Typhoons would be sent up to go have a look, and if need be escort.
With this background understanding of how modern Radar services are used piratically, taking into account a bit of background of the Malaysian authorities (short version: no terrorist attacks have ever happened even with our extremist religious views, honest.) Then this article will make some more sense: http://www.theguardian.com/world/2014/mar/13/mh370-satellite...
It is becoming clear they knew full well what was going on. They had the ACARS data. They had contacts on their radar, which they would have understood to be the plane, if not at the time, soon after. (But they really should have understood at the time!).
This stuff happens all the time in air safety investigations. See Egypt Air, or Air France!
P.S. Never thought I'd see Farnborough West mentioned on HN! Hello fellow South Eastern pilot.