Jon:
Yes, it can happen, but several things need to be wrong in order to hydraulic your engine. First, your cam has to be very large, and have a lot of overlap before sucking water in gets to be a problem. Secondly, and much more common, is a problem with the plumbing of the lines going to the headers. There should be absolutely no water going to the headers until 1500-2000 rpms. Check the spring in your "T" valve, and check the water flow to make sure it's coming in at the right time. Also, some guys use water restricters in the injection lines to further limit the water flow.
Dry headers should be considered a drag-race only option. They get extremely hot, and are extremely loud. Most places they are illegal as well, and are definitely cop-callers. If your water injected headers are set up properly, you should not have a problem.
SteveM.