Normally squelch is adjustable. It sort of filters out weak signals.
Therefore if you have the squelch all the way down you should hear all sorts of crap, hiss and the like (as well as legitimate transmissions). Then as you turn the squelch up, you should lose the crappy signals and hiss and only hear strong decent transmissions and there should be no hiss or static when your mates are not transmitting.
But you say you just have a squelch button? That I don't understand.
[Edit]. Just downloaded the manual - seems this unit does not have adjustable squelch just (as you say) a squelch on or off system. If you can only hear your mates whith the monitor key held in then they must be transmitting using a very poor signal, or you have a hardware problem, or you are not using the same channel (maybe close but not exact).
Do your mates have the same radios?
[Edit #2]. Have you looked page 15 of the manual, QT and DQT - seems like that matches your problem doesn't it?