Jim, I'm not a diesel expert, but I believe a "wet lining" is when the engine's removable cylinder liners are in direct contact with the coolant and are not fitted into a water jacket. I believe our engines have a non-wet lining that is fitted inside a water jacket and is a permanent non-removable lining. Therefore, the coolant comes into direct contact with a wet lining. Our engines would have indirect cooling where heat from the lining is transmitted to the water jacket and then to the coolant.
The issue with wet linings is that when the fuel ignites, it creates a shockwave. The lining wall transmits the shock to the coolant and creates cavitation bubbles. These bubbles actually become abrasive agents and will eat away at the lining walls, causing them to pit. If this is correct, I'm sure it's also an oversimplification of the problem too, but only wet lined engines have this problem.
I hope I haven't "lied" to you too much. If I have, I'm sure someone will correct me. /forums/images/graemlins/smile.gif