No the cables do not need to be exposed. In the long away past, it was normal for the cables to run inside a housing most of the way. Then the exposed stretches were introduced, seemingly to reduce friction and maybe weight. When I compared how cables operated with large portions exposed and the housing all the way, I could not detect any practical friction benefit to the exposed cables. In long term, in my experience, the exposed cable under the bottom bracket solution has been horrible and, over time, I eliminated it from all bikes in my care.