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Although many producers have come up through the engineering route, you don't need any technical knowledge at all to produce, as long as you can communicate effectively with someone who does know the equipment.
I think this point is more easily understood if you think of the director of a TV commercial.
The director will be very visually aware, and will know what can be achieved with telecine and digital video effects. He or she cannot be expected to be a technical expert, but as long as there is good communication between the director and the telecine operator and digital artists, then the result can be visually amazing.
So the musician producer needs to know what can be achieved in the studio, but someone else will be pushing the faders.
A musician is obviously in a much better position than an engineer to know how to put together a piece of music for a recording from scratch, and a musician producer will often be an arranger as well, putting together all the musical lines and colours, whether natural or synthesised, that will make up the finished track.
A musician producer could take on a solo singer much more easily than an engineer producer could, and he or she could obviously also produce a band. It really depends on attitude, and the one thing that successful producers have in common is that they have a clear image in their mind of the importance of the final product.
Anything that helps the final product is good and worth doing, anything that doesn't contribute to the product is a waste of time. It would be a waste of time trying to impose ideas onto a band that already knew their way round the studio and had a clear idea of what they wanted to sound like, and also had a proven track record of being able to satisfy their market.
A musician producer might be strongly tempted to influence the music rather than the sound of the band. But of course, many bands are receptive to new musical ideas and want to acquire outside influences to ensure that each new CD is a musical step forward rather than more of the same. I think you will know of bands in both categories!