My memory was correct. I found the section in the original proposal[1] that did not allow mixing nested rules and declarations:
> When a style rule contains both declarations and nested style rules or nested conditional group rules, the declarations must come first, followed by the nested rules. Declarations occuring[sic] after a nested rule are invalid and ignored.
[1] https://www.w3.org/TR/2021/WD-css-nesting-1-20210831/#mixing
Fortunately, this has been changed in the most recent proposal[2]:
> When a style rule contains both declarations and nested style rules or nested conditional group rules, all three can be arbitrarily mixed. However, the relative order of declarations vs other rules is not preserved in any way.