Ideally they would be dry.  There are three grooves in the block at the bottom of the liner (in case you aren't familiar; not trying to insult you).  The top and bottom grooves have o-rings; the middle groove has the weep hole and no o-ring (although I've heard of guys adding one when overhauling).  The top o-ring leaks coolant out the hole.  The bottom o-ring leaks oil.  I'd prefer the oil, even though it's messy.