To be expected. You're gonna get orange peel, and shrink in. Both can be wet sanded off if the clear is not paper thin.
Personally... I like 600 grit wet then go to buff. I find no reason to go to the 800, 1000, 1200, 1500, 2000 game. When you wetsand with 600, if you do it carefully and dont gouge anything, it will buff directly to full gloss - even by hand with auto compound on a rag.
I like (gasp) Formby's Lemon Oil as a wetting agent. I know - BLASPHEMER!~
Frank Ford showed me how to use kerosene as a wet sanding liquid, and the lemon oil is nothing more than mineral oil with a bit of lemon scent. If you're gonna recoat with Nitro, the kerosene or oil come off with naphtha, and after all that handling, you're gonna have to wash with naphtha anyway.
Franks idea is that the oil doesn't evaporate as quickly as water, and it tends to keep the paper cleaner, and carry off more material... it just works better than water.
www.frets.com <--- someplace in there Frank shows how to use Kerosene with wet sanding, I think its in his finishing tips section