Well I don't have duds active, but it seems to to matter (I just came back from a mission where my torpedo ran wild and looped around! Lucky for me I was right next to a dock and the dock took the hit.)
I don't do manual TDC. I'm the Captain. I'm above such things.
But I'm starting to get the impression that it's an angle and/or solution thing. While I was shooting at stationary boats in a relatively undefended harbor (just gunboats, so only had to stay submerged), I did a couple tests and found that my ability to hole a ship increased dramatically if I was shooting properly lined up with the "perfect shot" type deal. Any shots I did that were off the 90 degree line ended up not causing holes or any damage at all. Put about 8 fish in one boat without so much as a list. But turn to getting the perfect shot, and suddenly I had all but one shot make holes, and that one shot at least started a fire.
It requires more testing, but so far that seems to be what I could determine with stationary targets in a harbor.