If I have a nested bullet list, the inner list items are sometimes placed within paragraphs (which is what I would want), and sometimes not. Here's a test case:

*   BUG: following two nested bullet points do not have their text
    inside <p> tags:

    *   Nested bullet point.
    *   Second nested bullet point.

*   NOTE: but it works correctly if there is a blank line between  
    the bullet points:

    *   Nested bullet point.

    *   Second nested bullet point.

*   BUG: The error also manifests if there is only a single nested
    bullet point:

    *   Nested bullet point.

I would expect either all of the nested bullet items or none of them to use <p> inside the <li>. Instead, only the second lists's nested bullet points are in paragraphs. This is the generated HTML I get:

<ul>
<li>
<p>BUG: following two nested bullet points do not have their text
    inside &lt;p&gt; tags:</p>
<ul>

<li>Nested bullet point.</li>
<li>Second nested bullet point.</li>
</ul>
</li>
<li>
<p>NOTE: but it works correctly if there is a blank line between<br />
    the bullet points:</p>
<ul>
<li>
<p>Nested bullet point.</p>
</li>

<li>
<p>Second nested bullet point.</p>
</li>
</ul>
</li>
<li>
<p>BUG: The error also manifests if there is only a single nested
    bullet point:</p>
<ul>
<li>Nested bullet point.</li>
</ul>
</li>
</ul>

(I am using Python 2.6 and Markdown-2.0.1-py2.6.egg.)