I think Hagen goofed when they made the instructions for the aquaclear heaters. It seems like they made generic packaging for submersible and non-submersible heaters, so if you go by their instructions, the control dial should be above water. I believe there's even a marking on the heater that shows where the minimum water level should be. It kinda defeats the purpose of a SUBMERSIBLE heater, doesn't it? Maybe this is where your friend got that idea.
Just do as everyone else is suggesting and make sure it's in an area with good water movement and you'll be fine.