I have to admit ignorance of what really happens inside Perl but a small experiment sheds a bit of light on the situation:

use strict;
use warnings;

my $S4 = "aaa";

sub X {
    print "<$S4>\n";
    return $S4;
}

for $S4 (1 .. 2) {
    print "A: <$S4> <", X(), ">\n";
}
[download]

which supports the "closure theory", imho.

Update: adding to my experiment as follows

use strict;
use warnings;

my $S4 = "aaa";

sub X {
    print "<$S4>\n";
    return $S4;
}

for $S4 (1 .. 2) {
    print "A: <$S4> <", X(), ">\n";
}

$S4 = "bbb";
print "B: <", X(), ">\n";
[download]

which seems to confirm the theory that the loop variable is implicitly localized.