This applies to Firefox – need to test on IE as well

Start out with the markup:

• foo
  • bar

Problem 1 (cosmetic)
Go to Rich Text
Put the cursor after foo and press enter – you get a second top-level bullet in front of the nested ul – but the HTML is still OK

Problem 2
Go to Rich Text
Put the cursor before bar and press enter, then up arrow and type 'baz', so you have what looks like the markup:

• foo
  • baz
  • bar

The HTML is:
<ul>

<li>foo

<ul>

<li>baz<br></li>
<li>bar</li>
</ul>
</li>
</ul>

and the <br> stuffs up the wysiwyg conversion, so that the markup produced is:

• foo
  • baz

• • bar

In other words, it is hard to add a new line to a nested list.