A lot of leather still has tannic acid in it, too, I believe. By soaking it for a couple of hours, then changing the water to fresh water (notice the discoloration of the first soak), you get a lot of that out of the leather. A small amount of moisture with tannins is a whole lot worse than just the water alone. And the water is not a good thing to have in the sheath, as Handforged said.
I like to wax the inside of my sheaths, too. Johnson’s Paste Wax does the job, though it takes some time for the smell to dissipate.
If you are buying commercial sheaths, try a soak, then dry it really well. Then wrap a rag on a flat stick like a tongue depressor and get as much wax inside it as you can. Gentle heat with a hair dryer to melt the wax into the leather and about three days of sitting in the open air and you should see an improvement. That said, it is a lot of work, I know. Consider the first a test.
Patrick