Suggestion: There appears to be two aspects for the solution.
1. To establish best theory and best method
2. To develop the sensor or search for the existing ones
One may start by trying:
http://www.thomasregister.com
type Capacitive Sensor, which will return
Sensors: Capacitive; 54 Companies with their direct contacts and offerings,
Make an inquiry over
jlcusa@jlcinternational.com
Check whether TRIME-TDR technique could work at
http://www.alive.de/IMKO/Trime-compare.htm

Thanks for the suggestions. I have been checking the capacitive sensor market, but most of those are used as proximity sensors, and need to be very close, within a few millimeters. Due to some movement issues, we can't be that close, we need to be at least an inch or two away from the objects, preferably farther. The Trime unit, and others like that I have looked at, are made for use in soil, grain, concrete mix, etc, and generally require contact to work. However, I appreciate your response and will check with them again in case they have something new.  
  Meanwhile, if you come across some thing that looks good, let me know!

possibility 1:does the colour of the items changen when wet? If so the use an optical colour sensor. most of the big name sensor companies have some thing in this line.

2 if cost is not an issue then there are specialist moisture analysers ($1k-5k +)
talk to lab / process instrument companies. Most of these use a reflected light source and sample shutter type system & have a range of about 100 -300 mm

If you are further interested I will rat thru my boxes and find some brand names I have worked on. PS calibration of moisture is the biggest pain in the A*** going.

Does the weight vary with moisture?

Believe me you my be better looking for some constistant property change rather than moisture.

try putting the cap probe under the transport sytem with a window or hole

Regards Don

The capacitive approach to the wet/dry object with two or so inches of air clearance appears to be technically feasible by measuring a permitivity of the heterogeneous dielectric media between to conductive plates. However, the capacitive moisture sensor may be engineered, designed, developed and manufactured on custom basis, which may get expensive. This will probably depend on how much is the above business willing to spend on such a sensor.  Actually, what is needed is to measure the relative dielectric constant of the heterogeneous dielectric media, and to compare the result to a known range of an acceptable dielectric constant. Any more sensitive bridge measuring capacitance and linked to a switch (that may be solid state) could meet this challenge.

Is there a temperature difference between the wet and dry blocks?  If there is, you might want to look at an IR sensing method.   There are some non contact thermometers out there which are resonably priced.  

If the object is shiny when it is wet, you could use a calibrated light source and a light sensor. With this you measure the reflective difference.  It probably doesn't even have to be that different.  Opto sensors can be very sensitive.