Re: Please tell me I am not crazy...
300.3(A) requires that single conductors specified in table 310.13 shall only be installed where part of a recognized wiring method of Chapter 3. These single conductors obviously aren't Messenger Supported Wiring. Open Wiring on Insulators doesn't apply since this isn't industrial or agricultural (no mother-in-law jokes please). So, that only leaves us with Concealed Knob-and-Tube Wiring. It's permitted for extensions of existing installations or by special permission. Since it doesn't appear that this is an extension of an existing installation, that one's out as well. That only leaves the possibility of special permission.
Let's just assume for a minute that the local AHJ has granted special permission in this instance. The requirements of article 394 will have to be met. Just a few of the high points for our discussion. The conductors must be separated from contact with wood members they pass through by noncombustible tubes or bushings. A minimum of 1" of clearance must be maintained between the conductor and any surface it passes over with noncombustible supports. 3" of spacing must be maintained between conductors. Any of this resemble the installation for your mother-in-law? Also, if the attic space or wall are insulated and the wiring is within the insulation, then this wiring method is not permitted. I'm just guessing here but I doubt that this installation meets any of these requirements.
Also, since we have to assume special permission here, let's look at that. If, indeed, special permission has been granted, that special permission must be in writing from the AHJ.
Considering all of this. I would take pictures of the installation to the inspector and ask for a copy of the written special permission for the contractor to use Concealed Knob-and-Tube Wiring. If he is unable (more likely unwilling) to provide you with it, I'd start working my way up the chain of command. How far you'll have to go depends on how things are set up. When I inspected in Northern Indiana, my city had an Electrical Administrative Board that reviewed not only complaints against contractors, but also questionable decisions by the inspector. You'll have to find out how your local jurisdiction is set up. Regardless, of how you have to go about it, do not let this go.
It's been a lot of years, but the inspectors I knew in that area were pretty good. Are you by chance in one of the areas that has one or two "I-do-it-all" inspectors? Usually a retired carpenter, police officer, or fireman. We had some of those in the Northern part of the state. I can't imagine why an inspector would allow this type of installation.