If he is doing vinyl siding, I can't imagine it looking good 10 minutes after he installs it this way. Just the difference in heat during the day will cause it to expand and contract. Without the sheeting to move against, the laps will start to move in and out from the wall. Besides, how will you get a proper nail pattern at the ends and center of the panels, and how will you deal with any pipes or other things popping out from the wall, and how will you nail near the windows, and how will you...
Things like this need to be brought to either the installers attention, or the homeowner. If you want to remain anonymous just call the local builders board, but this, the siding, will cause many issues, the least of which will be bad looking siding. The fact he tore off the T-111 in the first place, is a hint he is a moron. If the homeowner has a problem with the window depths, you either charge them to reinstall the windows and retrim the inside, or you try and come up with an exterior solution to build out the trim or add new trim.
Usually, if it is a house that was build with T-111 and is now needing resided, it would have had aluminum windows. You should add exterior trim to those anyway. You don't have enough window frame to get a good long lasting seal with the vinyl J. It can be done, and I've done it, but I'd rather add trim. If you are not replacing the windows, you can let the customer know that you are adding exterior trim so that when they do decide to replace the windows, the window installers will just have to remove the trim, install the windows and replace the trim, instead of pulling down the window area of the siding.
Lots of things this guy coulda, shoulda done, but it sounds like he is new at this. It is also possible that he is new to vinyl. Folks who have never installed it always seem to think it is easy because it is plastic. It is actually much harder than wood or fibercement. Thinking about it, how is he going to trim it properly without sheeting?