Yes, the design decision to not allow subcategory nesting is clear. What @ganncamp says is that the option shouldn’t be offered, since it won’t be allowed. I agree that this feature request makes sense.
In fact, I ran into this situation recently, after a year or so disconnected of serious Discourse administration. I was creating a category and I saw that a subtask could be selected as parent. For a second I thought “can it be that someone convinced HAWK about nesting subcategories?” but almost immediately I replied to myself “No way”, and was amused when the “You can’t nest…” dialog appeared.