You need to power off the phone, then power it back on into bootloader mode. I think you are already there, but just in case, do the following.
Power off the phone.
Remove the USB cable.
Open the keyboard.
Press and hold the up on the D-pad (the edge closest to the screen)
While holding the edge, press power button, then release.
Release the D-pad.
You should now see bootloader in the top left.
Attach USB cable. You should now see USB connected (or something similar).
Now, RSD Lite should see the phone.
Click decompress and flash.
Once it starts, do not disconnect the phone. It will reboot automatically on it's own.
Couple of suggestions:
Let the phone dry out as much as possible first.
Make sure your battery is pretty well charged. If need be, buy a universal battery charger and charge it outside of the phone first.
Make sure you do not power off the phone while flashing.