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<ul>
<li>

Whatever text.

<ul>
<li>I am a nested list.</li>
</ul>

 I am a space-indented
 preformatted text block.

</li>
<li>

Whatever text.

 I am *NOT* a space-indented
 preformatted text block.
 I am not even a separate paragraph.
 Isn't that stupid?

</li>
</ul>


For what it's worth, Parsoid produces no preformatted text blocks here, and does something completely different (and not any less stupid) than the core parser with the paragraphs.