Are templates like wikt:Template:trans-top, wikt:Template:trans-mid, and wikt:Template:trans-bottom disallowed by this?
Topic on Talk:VisualEditor/Design/Software overview
Our goal is to for the answer to be no, it will not be disallowed, because all existing Wikitext should still work. However, the editor will still not know that the top, mid and bottom templates are in any way related, so the user experience will suffer greatly compared to using templates with an encapsulated model. Eventually we want to see the ability for the template call/transclusion user interface to be customizable using on-wiki template parameter definitions and gadget code - but the editor will still need templates to be encapsulated for these user interfaces to make sense to the user.
This post was posted by Trevor Parscal (WMF), but signed as Trevor Parscal.
Another note on "Template Encapsulation": Yes I agree that the hierarchical way is preferable, but I can provide (anecdotal) evidence that we attempted this design a few years ago (about mw version 1.14) and run against a wall: Templates were simply not allowed to have that much content by the parser, which was throwing error messages. We ended up with a Key Start / Lead / Key End structure (random example: http://species-id.net/w/index.php?title=Fannia_postica&action=edit ).
This may be one reason why Wikipedia-Table templates, provided some lists generated with them are long, often use the serialized version.
Also, I would like to point out, that for all SMW users, Semantic forms strongly favors the serialized version: multiple records (1:n relations) can be conveniently edited that way. While WMF does not use SMW yet, it is very widely used elsewhere.
Thus, while I agree on the preference for hierarchical display, I wonder whether it is truly impossible to find a solution, a kind of virtual hierarchy. I am thinking of providing an ability to extent existing templates with the ability to call a "start nesting" parser function, which nests all further content until the call of some "end nesting" (or the end of the page). This would greatly smooth transitioning existing templates.