A recently proposed mechanism suggests that transient compartmentalization could have preceded cell division in prebiotic scenarios. Here, we study various classes of transient compartmentalization dynamics. We show that two regimes are possible: In a diffusion-limited regime (e.g. simple autocatalysis), a large noise is generated at the population level due to asynchronous growth. In contrast, in a replication-limited regime with many steps (e.g. polymerization), a low noise is generated at the population level. Since strong noise will yield many unviable population compositions, polymerization can present a strong fitness advantage. For deterministic growth dynamics, we introduce mutations that turn functional replicators into parasites. This can either lead to coexistence or parasite dominance, and we derive the phase boundary separating these two phases as a function of relative growth, inoculation size and mutation rate. We show that transient compartmentalization allows coexistence beyond the classical error threshold.