Deep frying is certainly an easier way to get things crispy, but there are things you can do to get crispy batter without it.
First off is the bread crumbs. Ideally the bread should be relatively stale and therefore dry. If you blitz your own breadcrumbs, leave them out for a few hours to thoroughly dry out before you pane. You can also try using panko, which are pre-packed Japanese breadcrumbs that are very crispy. You can usually find them in supermarkets these days.
The other thing you can do is double-crumb the chicken, so flour, egg, breadcrumbs, egg, breadcrumbs. This double layer of crumb should make for a really crunchy crust.
Finally, you can pseudo-deep fry using a wok. Rather than a full pan of hot oil, just put an inch of oil in a wok and fry in that: safer and less waste. A good way of knowing when the oil is hot enough is to use a wooden chopstick. Simply put the tip into the oil and if bubbles immediately gather around it, the oil's hot enough.
Set your oven to about 120 degrees F/50 degrees C, pop a plate with some kitchen paper on it in there, and fry in batches, placing the chicken on the plate while do you the rest.
If you use this method, you could try a tempura style batter. Take 100ml of chilled soda water and mix with 140g of self-raising flour and mix well. Dust your chicken with cornflour (cornstarch), then into the batter and straight into the oil. Turn a few times to ensure even cooking - when the batter is a nice golden brown it should be done, about 5-6 minutes.
In order to get fried cakes to stick together, they want to be cold when they go in to the oil. This allows them to congeal so that they are more solid. If you are leaving your ingredients out while frying or if there are warm ingredients giving off steam, this could explain the slow degradation with each batch. Once they're done in the food processor, put them in the fridge (or freezer) to cool them. Pull out just enough for a single batch at any one time.
Best Answer
Firstly I think you're having trouble making a distinguishment between water and oil absorption. Even though placing food in (room temp) oil may at first seem as if it had gotten it 'wet' it's a very different kind of soaked compared to doing the same thing with water, as the two liquids have profoundly different properties.
Oil when heated, however, behaves even more differently. The immense heat of the oil (160-270 ºC, 320-520 ºF depending on the type of oil you are using) actually vaporises moisture (water) contained inside of whatever it may be you are deep frying, which is why food thermally processed in this way is oily but not wet, and can even be dry if overcooked.
The key thing to remember here is that oils, being hydrophobic and lipophilic, are exceptionally different to water and should not and cannot be expected to behave even remotely similarly.