If you don't seal it, the powders will come off with contact. BUT, if you do seal it, the dilution will weaken the strength of the pigments (from opaque to almost clear). If you apply them wet (either mixed in a carrier, like white spirit, or onto a model covered in said white spirit) you get a better idea of the colour balance.
I seal using airbrushed matt varnish. The only thing to look out for here is that the varnish soaks into the powder - I have a model with some pale lumps where it didn't totally, and now the raw powder can be seen clearly.