Sounds like you have the wrong relay:
http://www.kirkhammotorsports.com/ma...merrelay.shtml
Here's a wiring layout from a '66 bug (J2 is the hi/low relay plug):
http://www.thesamba.com/vw/archives/...ing/bug_66.jpg
Your description tells me your wiring is right, the relay is either not a latching relay or is defective. Think of a retractable ball point pen, a similar mechinisum is used in the relay. A common reason for using latching relays is as a fail-safe in control circuits where you want the relay to maintain it's state if power is lost to the control system. (like a pump control or a traffic light system)
Actually another thought hit me, is your battery fully charged? (relay may not be getting enought juice to kick the latch)