There is no need for the shock to rebound fully, although about half-way rebound is typical.
The aim is for the damper to be air-free and to behave as linearly as possible. So, you shouldn't notice any stiffeneing of the shock close to full compression, and there shouldn't be any squeaks.
The foam wedges are there to keep the diaphragm in shape and also to give a firmer rebound if you want it. Personally I feel they make the rebound too strong and I've removed them from my Yokomo. 1/10th shocks aren't dual-rate, so using wedges to tune rebound seems a bit pointless to me, as it is bound to affect the bump/bound too.