BE400 Captain reports exceeding 1;500 FT prior to WENTZ on the RUUDY 3 departure from TEB. LNAV and VNAV were not selected prior to takeoff with 2;000 FT set in the MSP alerter.

Narrative

We were assigned the Ruudy Departure off of Runway 24 at TEB. Before departure we briefed the required crossing restrictions 1;500 FT at WENTZ before climbing to 2;000 FT at TASCA. I was the assigned PIC for the aircraft but pilot not flying for the leg. I suggested that we turn the autopilot on by 400 FT for the departure. I also suggested 1;500 FT be set in the alerter; however the pilot flying said that the autopilot would fly the correct vertical profiles with 2;000 FT set. I agreed and then proceeded to set 2;000 in the alerter. We were cleared for takeoff and shortly after while I was running climb checks and switching to departure; I noticed that we were going through 1;500 FT (I think we were at 1;800-1;900 FT) before WENTZ. I was surprised and for a moment thought that I missed something. I asked the pilot flying if we were supposed to be at 1;500 FT and after a couple seconds he responded by turning the autopilot off and started an immediate descent back to 1;500 FT. The Controller seemed annoyed and told us to look over the departure. The Controller did not indicate that there was any further action to be taken.After takeoff I realized that the MSP [MCP] was not properly configured. Even though we briefed what we were to do; we did not verify the mode before departure. The fact that 2;000 FT was set in the alerter without proper VNAV modes armed meant that the autopilot was flying to 2;000 FT. If we would have set 1;500 FT initially we would have had all the proper normal cues such as a 1;000 FT to level tone and a proper level off by the autopilot. We obviously should have verified the MSP prior to takeoff. I'm not sure exactly why that did not happen. We were not particularly rushed. I think there was a difference of comfort between myself and the pilot flying on automation usage. I tend to like to set the altitudes manually. The pilot flying seemed comfortable in using vertical modes. Since it was his leg I allowed him to set an initial 2;000 FT in the alerter with the expectation that the autopilot would level off at 1;500 FT. Regardless; we both missed the set up on the MSP and were not on the same page in terms of automation. Next time I will set 1;500 FT and will do a better job verifying the automation selections.