Dear Mike,

Please wrap the nested WebLayoutPanels with a WebLayout container.

Specifically, in the nested master (i.e. the content page to the root master):

<asp:Content ID="Content1" ContentPlaceHolderID="cplRootContent" Runat="Server">

    <cc1:WebLayout ID="NestedLayout" runat="server" FitParent="FitParentContainer"

        Height="401px" Width="290px" Orientation="Horizontal">

        <Panels>

        <cc1:WebLayoutPanel runat="server" >

           ...

You may also check out the following documents for more details on creating nested containers:

Creating nested container in Design View 

Code Structure of Nested Container

Regards