"It is wet."
Translation:Mae hi'n wlyb.
Mae hi yn gwlyb is allowed as well surely as "hi'n" is an abbreviation of "Hi yn"
Yes it isn't strictly incorrect though the problem with accepting it is that it encourages people to use it, which is a bad habit to get into since it is a sign of poor Welsh, so you're better off getting into the habit of using "hi'n". EDIT: Also you will have been maked wrong for not softly mutating "Gwlyb" after "yn".
There are some contractions which you should use, and this is one of them - when yn is being used as a link from dw i, etc, either to a verb-noun or, as here, to an adjective or noun.
You should not use a contraction with yn when it being used as a preposition meaning 'in/at'.