When using a tag from a tag library, is the body allowed to contain another instance of the same tag?

While this is intended to be valid for the spec, it unfortunately is not because of the flush bug in the Servlet 2.2/JSP 1.1 spec. For the same reason you cannot do jsp:include flush="false" within a body tag, you cannot include another tag within a body tag. This was fixed in the Servlet 2.3/JSP 1.2 spec, so you should be able to use it in newer servlet engines.