I have been suggested that nested stories should not be created (stories within a story) and that stories should be kept at just one level below the lowest level of portfolio items. But I haven't come across any issues because of this in the standard apps and graphs so far. e.g. milestone cumulative flow diagrams. I can vouch for atleast this app, because I have tested this multiple times with various combinations of child stories and features at multiple levels just to be sure.
Is there anything that I'm missing- any page or report that gives incorrect data because of this? Is there any specific reason why we should stop creating child user stories?