Bruce -- you're right.
Basically, you want to position your strobes so that you illuminate your subject with the edge of the light. That way, you won't light up any of the water between you and your subject (which causes backscatter).
Of course, if you are in a pristine environment with absolutely clear water, you can do whatever you want with your strobes. 
Here are some useful threads:
http://wetpixel.com/forums/index.php?showtopic=15844
http://wetpixel.com/forums/index.php?showtopic=11579
I have some photos of good strobe positioning, but I can't get to them right now. I'm leaving for Komodo tomorrow, and I have way to much to do before then. Perhaps some other folks can chime in here, if it isn't too much off topic?
(if you want to hear more, please voice your opinion)