He has 5 wires, total...one 12/2 w/G another 12/2 w/o

I missed that in the original post, but that would make the installation
easier having a dedicated ground wire. Just cap off and ignore the extra
white neutral wire (you would still have to do some testing with a meter to
determine which wire you are using).

Rather than all that which isn't compliant either (not supposed to
have multiple cables making up one circuit)

Agreed, but it's kind of too late to be completely code compliant at this
point and still have two circuits. Electrically, the four wires in the two
cables would be no different than running four individual wires in conduit.
The rest is a typical subpanel installation.

I would make it all up as I described. If he ever digs up the line and
installs conduit and the proper wires, it would be an easy conversion.

he might as well just use the one 3-wire from a double-pole supply
breaker and go to a box in the outbuilding and then from there the
internal circuits.

As RBM posted, that wouldn't provide two 120V circuits with neutrals and a
ground. The method I posted does, and also leaves the option for a 240V
circuit if you need that.

He'll still be limited to the overall capacity of the 12 AWG wire but
sounds like pretty small loads any way.

Yep, by not planning ahead, the original poster has seriously limited what
he can do. Still, he's probably not going to have more than a light and an
outlet or two in a shed.

I ran conduit to my shed, with 10 gauge wire to support a 30A subpanel.
That's way more than I'm likely to need, but I can always pull that out and
feed bigger wire if I need to.

Anthony Watson
Mountain Software
www.mountain-software.com