Wet Sanding vs Dry Sanding

What they said.
To answer your question, yes - the bondo will absorb moisture and cause you grief down the road with both the paint on top of it and rusting the metal underneath it.
You only need to sand the bondo down to 180 grit and top that with some 2K hibuild primer. Dry sand that with 180, take care of any high & low spots, primer again, repeat this process until you are happy with the results, then wet sand.
C