It works most of the time, but that's why "it's" is used improperly a brazillion times a day.
Not really, because the subconscious knows that the rule of apostrophes (or not) is reversed in this particular case; that "its" signifies possession, and "it's" means "it is."
The subconscious remembers it because there's an exception to every rule, and the red light goes on.
But really, the subconscious is based upon past exposure, and while you and I and everybody else here probably reads more books in a month than a primitive reads in ten years, the primitives have considerably lesser-developed subconsciouses.