OK The code did allow 3 wire feeders to separate buildings back in the olden days. It was probably 250.24 in those days (Clinton administration). If you treat the feeder entrance like a service (Ground electrodes, bond the neutral, no other metal paths etc) you are legal under that code. If your AHJ will still let you keep that grandfather around you can stay with the 3 wire to the building(s). You still need another disconnect where it enters each building. Once you have that, standard wiring methods for feeders, taps and branch circuits should be OK. Physical protection usually ends up being in the eye of the AHJ so we can't say what the conduit requirements will be.
I would be OK with SE cable for a feeder.
These are not really service conductors since you have a 200a breaker upstream (on the pole or in the outbuilding with the transfer switch). You do bump into 225.31 about feeding one building through another and that requires a disconnect at each building entrance.
I see his concern that you have a feeder inside the building that is not disconnected with the local disconnect.
You can make that go away by taking the garage feeder off the line side of the 200 a breaker in the house. This is a feeder tap, so you use feed through lugs on the bus if the panel board supports them. The other option would be to add another disconnect for the garage feeder at the entrance to the house. If you can do this in the house panel it would be easier.
