Yes, you can. You can nest as many sequences on as many levels as you want.
Good luck on manipulating them without Premiere Pro crashing though. Perhaps you can get away with several in a short project. But if you happen to have a number of them in a full-length movie, nested in two or more levels, be prepared to restart your project very often.
At first I thought it was memory issue, but even after adding 8 more GBs, the situation did not improve. Perhaps it was just a problem with CS3, which was really unstable and buggy on Mac… but no, CS5 with newest patches behaves the same. Old projects – this one in question was done in Pro 1.5 – with nested sequences notoriously refuse to render, crash the program (without saving!) and make it impossible to work.
Solution: Edit them in Premiere Pro 1.5 or 2.0, they seem stable enough to handle this kind of project. Or move all the nested sequences to a single timeline. Sucks big time, one way or another.
Oh, and BTW, this is only true on Mac! PC version is much more stable, and can handle more. Why am I not surprised…