This seems to be fixed since bionic.

From a jammy host, I was able to run a jammy privileged lxc container
and within it, run a privileged docker container.

From a jammy host, I was able to run a bionic privileged lxc container
and within it, run a privileged docker container.

From a bionic host, I was able to run a bionic privileged lxc container
and within it, run a privileged docker container.

For instance:

# lxc launch ubuntu-daily:bionic docker-b-priv -c security.nesting=true

Run the container, install docker, and from within it, run

# docker run --name test --privileged ubuntu:latest echo hello
privileges

Which should print
"hello privileges"

** Changed in: docker.io (Ubuntu)
       Status: Confirmed => Fix Released

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https://bugs.launchpad.net/bugs/1599121

Title:
  Privileged Docker container in privileged LXD container

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