Yes you can http://www.w3.org/TR/html4/struct/lists.html section 10.2 see DEPRECATED EXAMPLE:
which is:
<UL>
<LI> ... Level one, number one...
<OL>
<LI> ... Level two, number one...
<LI> ... Level two, number two...
<OL start="10">
<LI> ... Level three, number one...
</OL>
<LI> ... Level two, number three...
</OL>
<LI> ... Level one, number two...
</UL>
It's my understanding that the LI tags remain open until closed either explicitly with </li> or implicitly by the next <li> or the final </ul> or </ol>.
Because this example is HTML, not XHTML, and the LI tags are not explicitly closed, I believe that the OLs in that example are embedded in fact in the LIs and not the UL/OL elements.
The same is true of the old-fashioned table markup. If you saw this:
<table>
<tr>
<td>Here is a
<p>paragraph
<td>Here's another cell
</table>...would you say the paragraph was embedded in the TD, the TR, or the TABLE? It's in the TD, of course.
Paul
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