I've wet-formed all of my sheaths and never had a problem with drying out the leather. Just make sure you gently rub some conitioner into it after its dry. (If the leather was brain-tanned, you don't even have to bother with conditioning). Here's a hint...
Cover the knife in plastic wrap and place it in the sheath. Get a couple pieces of thick foam rubber (I use those little foam blocks you put under your canoe when you strap it to a car roof). Sandwich the sheathed knife between the blocks and wrap the hell out of it with rope. Apply lots of pressure while binding. Leave it for 4-5 hrs, and then take it all apart, gently remove the knife(wipe off the blade cause there's probably some moisture) reshape the sheath with your fingers to tighten a bit. Let it dry slowly away from heat( It'll shrink enough to give you a snug fit (Depending on how the leather was treated, salt crystals may form, just buff them off with a dry cloth). Then I condition the leather and seal it with some beeswax. Gently melt the wax on with a heatgun. Good luck.