You really need to check the settings inside the NAZA assistant, because even if the switch travel is setup correctly, the flight mode inside the NAZA could be set to something other than Manual. Basically, the "Manual" rectangle at the bottom of the RC tab should be highlighted when the FMD switch is in the position nearest to you. See Fig. 1 attachment. Furthermore, the middle and leftmost rectangle should light up blue when the FMD switch is set to the ATTI and GPS modes respectively.
The method for flipping the FMD switch for compass calibration was also a sticking point for me initially. Basically, you just switch it back and forth a dozen times or so, ending back on GPS mode, and then wait for the LED to turn yellow. When I was using the Lite firmware, it usually took about 10-11 repetitions and a 1 second pause. It would not enter calibration mode unless I paused after rocking the switch 10-11 times. With the NAZA V2 software, it seems to enter the calibration mode after 5-6 repetitions and without needing to pause afterwards.