The chicks should not be swimming, but they shouldn't be too dried out either. They need enough moisture left in the egg to slip around inside. I'd recommend cheese cloth over paper towels or newspaper. If you block air circulation in your incubator at a time that the chicks are hatching you mess up oxygen difusion and humidity. It is usually recommended that you drop the temperature from 99.75 to around 98-99 for the hatch.
Bacterial infection is another cause of late mortality.
If the chicks smelled bad when you broke them open they likely died of infection. If these chicks hatch they smell bad and usually die soon after hatch. A newly hatched chick will not have much of a scent, but a mushy chick smells like rotting meat. If you have an infection problem you can try and fumagate the eggs. This is supposed to kill the bacteria outside the shell.