HTML Basics
Stanford University Libraries & Academic Information Resources

Complications

However, if the List item is part of a menu or dir, then it may not contain nested lists. The reason for the restriction is not intuitively obvious, so this restriction easily leads to errors.

Here's the rule:

Menu and dir, can be part of another list, but cannot themselves contain lists. Menus can not have submenus, directories cannot have subdirectories.

No, I don't understand it either, but the folks that worked these things out are very logical and argue back an forth a long time before setting things in concrete, so there's undoubtedly some sensible, if arcane reason for the rule. Perhaps it's just something as simple as the fact the that the current breed of browsers happen not to handle sub-menus and sub-dirs.