Follow-up Comment #1, sr #110886 (project autoconf):
Thank you for the nice clear bug report.
Unfortunately, it looks like you have tripped over one of the known
limitations of autoupdate. Nested replacements just don't work, and it's
unlikely that they can be made to work in the present design (this involves
trying to set up m4 to expand _some_ but not _all_ macros, which is inherently
fragile and limited).
Also unfortunately, none of the autoconf core developers have the time that
would be required to come up with a design that _can_ handle nested
replacements.
Therefore, unless you or someone else develops a fix, you should not expect
this to be fixed in the foreseeable future.
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