AUTO does not mean it does what is best, it just means the logic is automated to the following:
ISOLATION VALVE - AUTO ... Closes the isolation valve if all Engine Bleed Air and Air Conditioning Pack Switches are ON. Opens the Isolation Valve automatically if either Engine Bleed Air or Air Conditioning Pack Switch is positioned OFF.
I believe the purpose is to insure that both sides of the manifold are pressurized for startup (and then automatically separated as packs are brought online), that the right side is pressurized for a bleeds off takeoff, etc. etc. Abnormal procedures are... well abnormal. Personally, I much prefer the good old fashions "on/off" switches on the 707/727, nothing convoluted about those.