JC,
When you set hydraulic lifters you have to tighten in small increments with a little rest between cranks. The lifter has to have time to bleed down...if you don't give it a little time, your valve will open as you described.
With the engine running, you should be able to push down hard on the lifter end of the rocker with a hammer handle or block of wood. Holding hard, constant pressure should collapse a hydraulic lifter and make the engine sputter and flop until you release it and the lifter pumps back up! If all this happens, you have hydraulic lifters.
Stuart
