The only time I don't see that wet location conductors are needed are where the box is within the building envelope (flush mounted) and sealed against moisture and all openings are sealed to prevent air flow from outside to inside, if this was considered a wet location then we would have a problem using regular box's and even the wood surrounding the box would have a problem, I went to the state with this and they agreed with me, but if the box, raceway, or Conduit Bodies, is surface mounted then it is outside of this dry envelope and would require wet location conductors and as was said NM-B would be a no-go.
The Conduit Body in the OP is being used as a protection sleeve I see this as no different then using a raceway in the same fashion which the code allows, as long as they are secured within the required distance from where they enter it, and a fitting is used (314.17) to prevent the damage of the cable, and the sheath has to continue to the final box or termination point so that it enters this box at least 1/4", and when in a wet location the proper wiring is used, I see no problem.
Also a very common install for a Air disconnect to raise it up to a better hight to make it easier to work on.
