Yeah, “dry” is tough here. Unfortunately, it was used extensively in the 19th century, without definition. It could mean a dry amontillado, which I don’t think has changed (have to dig out my sherry books), but “amontillado” could equally mean a blended sherry with a sweet edge. Not everything had sugar–or Pedro Ximenez–dumped into it, though. If you were a connoisseur who liked you sherry bone-dry, if you lived in a major port city you could probably find it. But I don’t think that’s usually what they were using in bars. The vermouth is just as vexing: originally, the Adonis and the Bamboo both seemed to be made with Italian vermouth; French vermouth creeps in later, once the Dry Martini has gotten in there and ballyhooed it.
And yes, Lustau was smart enough to hitch its fortunes to the cocktail people and not worry so much about what the wine geeks think. Result = $.