Wet sanding is for final rub out. Wet sanding between coats can create real problems; like missed slurry/dust that gets trapped IN the finish, looks white not pretty.
3 wipe on = 1 properly applied wipe-on coats.
It sounds as if your are not using the proper technique to wipe-on the varnish. It may be because you are not thinning the varnish enough for a wipe-on application. You should thin the varnish about 50/50 with mineral spirits and then wipe in on like the kid wipes the table just before you sit down at the fast food joint.. wipe it on and leave it alone, no going back and forth or over the same area more than once, twice at the most.
A 3' x 5' table top should take less than a minute to wipe-on a coat of varnish... a 2 or 3 coat set per night is best. I usually do a light scuff sand (dry) with 320 open coat sandpaper just before the last coat.
With Waterlox I usually do 2 sets because it is a bit slower to become dry-to-the-touch than some of the other varnishes. Waterlox does not need to be sanded between coats unless it's been a couple of days since the last coat. Poly varnish MUST be sanded to get it to stick; not so with Waterlox.