Hello,
Indeed such direct nesting in an item is not a valid scenario, because there is no text before the divs that you use as content. The div element is considered as the content for a given item, however, in the code snippet there is no item to attach the content to. In other words, you should have, for example - SubItem 1 and place the divs after it, so that the content of the divs should be rendered as content to that item.
Please refer to the following dojo example, demonstrating this implementation:
http://dojo.telerik.com/EroNe/4
The <li> elements in certain item are considered as child items, while the div elements are considered as placeholders for content. Hence, without a text to specify/initialize a given item, the content cannot be associated with it (which is why the input is not rendered in your example)
Regards,
Nencho
Telerik by Progress