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Default Right way to wire a generator tranfser switch?

Hi Readers,

The installation instructions for the generator transfer switch I want
to buy (figure 4 on page 5 of http://www.reliancecontrols.com/Docu...structions.pdf)
indicate that I'm to leave neatly placed wire nuts as connections
inside the circuit breaker panel box. My neighbor (with some
construction knowledge) says doing so would be an electrical code
violation: he says there should be no wire nuts within the panel
box.
Is it a code violation?
If so, what would be the "correct" way?

Thanks for advice,
Theodore.
 
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