I just had a random idea on how this could be implemented…
Currently “nested embeds” appear like a file embed, and in my proposal that does not change. However, rather than an “open in default app” button, they get a button that loads the embed in place.
This solves the potential issue of the infinite loop of embeds because the embeds would only get loaded when you click the button manually. Also it doesn’t bog down the initial page load if you have embeds many levels deep.
In addition to this, you could include a button to re-collapse the embed, turning it into a kind of fold/unfold option like has been requested here: Displaying Linked Notes Inline. (Block referencing alternative)