The idea of watering it in is to prevent the dew from only slightly diluting it. Dew will create a very condensed fertilizer and can kill the grass. By washing it through with a lot of water, you prevent that. So yes, go back to your normal watering.

As David says you water it once to wash it off the grass blades. From there just normal watering schedule. About 2 or 3 days after you water you should see results assuming the ground is not bone dry.

Thanks a bunch guys.

Another quick one: it's been flash raining here [down pour for 45 mins here every other day] -- Do I wait until the grass is bone dry to drop the fertilizer or can I drop it while it's a little damp?

I would wait until it is bone dry. You don't want any of it dissolving until you can flush the water through.