Accurate representation of cryohydrological processes is fundamental for biosphere models, particularly at high-latitudes, given their influence on carbon and permafrost dynamics in carbon-rich peatlands and wetlands. This study analyzes site-level simulations in moist and wet drainage conditions in continuous or discontinuous permafrost regions, using a terrestrial ecosystem model DVM-DOS-TEM. Functional benchmarking was conducted against eddy covariance flux alongside soil temperature, moisture, and thaw depth observations. Thermal and hydrological analysis reveals parameter sensitivity and uncertainty concerning carbon cycling and permafrost dynamics. Flux representation is markedly consistent at sites characterized by continuous permafrost with less seasonal variation, owing to longer soil freezing duration. Sites in discontinuous permafrost, exhibiting active permafrost degradation and talik formation, pose considerable challenges in accurately depicting thaw depth. Underprediction of soil moisture across all sites has more pronounced effects on boreal wetlands characterized by thick organic layers up to 1 m. These results illustrate the limitations of terrestrial ecosystem models to represent environmental and ecological dynamics in wetlands. Attempts to adjust model hydrology have yielded marginal improvements in thaw depth prediction, but revealed large effects of abrupt phase changes for poorly drained sites on discontinuous permafrost. Our analysis suggests the importance of gradual phase change representation, particularly in ice-rich wetlands with thick organic layers, which will be crucial when evaluating the permafrost carbon-climate feedback in model projections.