Can a low voltage light switch be located in a closet as opposed to outside the closet?
I was not able to find any sections in NEC that prohibit switches from being installed in closets, so until somebody can point to a specific section I'd say it's not a problem. There may be adaptations to the code in your local area, so you'll have to check with the local Electrical Inspector to be absolutely sure.

The NEC does, however, have a section on luminaires in clothes closets.


  NEC 2011  
  
  410.16 Luminaires in Clothes Closets.
  
  (A) Luminaire Types Permitted. Listed luminaires of the following types shall be permitted to be installed in a closet: 
  
  (1) A surface-mounted or recessed incandescent luminaire with a
  completely enclosed lamp 
  
  (2) A surface-mounted or recessed fluorescent luminaire
  
  (3) Surface-mounted fluorescent or LED luminaires identified as
  suitable for installation within the storage area
  
  (B) Luminaire Types Not Permitted. Incandescent luminaires with
  open or partially enclosed lamps and pendant luminaires or lampholders
  shall not be permitted.
  
  (C) Location. The minimum clearance between luminaires installed in clothes closets and the nearest point of a storage space shall be
  as follows:   
  
  (1) 300 mm (12 in.) for surface-mounted incandescent or LED luminaires
  with a completely enclosed light source installed on the wall above
  the door or on the ceiling    
  
  (2) 150 mm (6 in.) for surface-mounted ﬂuorescent luminaires installed
  on the wall above the door or on the ceiling  
  
  (3) 150 mm (6 in.) for recessed incandescent or LED luminaires with a
  completely enclosed light source installed in the wall or the ceiling
  
  (4) 150 mm (6 in.) for recessed ﬂuorescent luminaires installed in the
  wall or the ceiling   
  
  (5) Surface-mounted ﬂuorescent or LED luminaires shall be permitted to
  be installed within the storage space where identiﬁed for this use.