That's how it should work.
The wet/dry only controls the flow of flush water...lets it come into the bowl in the wet mode, blocks it in the dry mode. Waste is pumped out in both modes. It's not holding water because marine toilets aren't designed to hold water...in heavy seas--or even a big wake--it would be all over the head. To flush the toilet: pump a couple of times in the wet mode to wet the bowl (if you need to add water ahead of use, you'll have to pour it in with a cup). After use, switch to dry and pump enough times to move the bowl contents all the way to the tank (don't stop as soon as the bowl is empty...that will leave the waste sitting in the hose)...switch back to wet for 3 or 4 pumps to bring in enough water to rinse the bowl...and back to dry to pump that all the way to the tank to rinse out the hose. At the end of each weekend, after you close the intake seacock, pour about a quart of clean fresh water into the bowl and flush that all the way through to the tank. I suggest you also check out the link below.
