Thanks for the response, but I'm afraid to say that this doesn't answer my question.
According to the BOL documentation I quoted., temp tables in nested procs should never conflict based on name. I'm uncomfortable with your assertion that there is something wrong with a practice that is documented to be safe.
A small code example of where this could cause a problem would be apprecated
I wish that I had time right now to find those procedures and try to duplicate the error, but right now I just don't. Of course, whatever works for you, works for you. If it doesn't cause an error, then don't worry about it too much. Apparently this only happens in certain circumstances and I'd like to make duplicating the error a project for myself since I may have stumbled upon a SQL bug.
But think of it this way, you can name columns commands, for example, you can name a column YEAR, and they don't cause errors that I'm aware of. But why risk it? I normally avoid naming columns names that are also command or function names, just to be safe.
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge. - Stephen Hawking