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You are correct, nested anchors are not allowed. As it turns out according to the xhtml 1.1 dtd / schema nested anchors are not allowed in xhtml 1.1 (if you choose strict vs tr it should be caught by a validator). They are also not allowed in html4 or html5 according to the rules and therefore are not allowed in xhtml5 either.
That said, most browsers did display nested anchors as expected, so people still use them but techically should not.
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