I think it could be safely said that the rules of spoken and written grammar are only loosely applied to lyrics and poetry, often in favor of common or colloquial phrasing, accentual verse or rhyme.

I believe the word "in" was dropped from the line in order meet the already common phrasing, but it could also have been dropped to comply with the rules of accentual-syllabic verse, allowing for five syllables with a major stress on the fourth (the word "that"). Otherwise, the lyrics to yet another somewhat older song should have been, "That's the way (uh huh, uh huh) [in which] I like it!"

On the question of implication, I agree that if the word, "in," was included in the phrase of these lyrics, it could have been assumed to be an implied euphemism referring to a sexual act and the insertion of something into or inside of another, but I don't believe that was the intent of its absence.

Alas, I believe that the word, "in," was dropped from the common use of the phrase a long time ago, although it remained in meaning and has been used a little more frequently in the questioning form ("Is that the way in which you like it?"), though even there, it is now more often dropped in favor of, "Is that the way you like it?"

Likewise, I believe that although it is more proper to use the word, "in," whether the phrase includes either "want" or "prefer," its non-use is more a matter of common or colloquial preference. Nothing more.

Here hear! I hearded the shifted use of the passeded tense, too. And I don'ted liked it then, and I still don't likeded it now. To my ears, it sounded do much like an "Ebonics" form of translation. I vote to drop it, in favor of "pled" (or maybe pronounced as such, but spelled [or spelt] "plead"). Was that well saided?