I'm not sure you can nest the root of a vhost inside the root of another. Wouldn't you effectively be exposing the 'lower level' hosts files as part of the structure of the original site? I guess we will see,
if I had:
site0/htdocs -- and under that was
site0/htdocs/vhosts/site1/htdocs,
I'm thinking site0's directives apply to both.
Not sure, I have never seen a case where the vhosts were nested.