Nesting by itself doesn't cause any issues. Something else is likely going on.
The red just means your media and sequence don't quite match.
I once worked with a customer whose encodes were failing because he had sequences nested at least three layers deep. As I recall it, his master sequence contained about eight nested sequences, each of which contained 10-20 nested sequences (each of which was a complete scene from his feature-length film. I believe many of the scenes also contained nested sequences as well.
Once he eliminated the intermediate level and strung al the scenes together on a single sequence, encoding succeeded without a hitch.
Of course, I have no way of knowing if your structure is this complicated, but I thought it was worth sharing... If that's not the answer, then how 'bout sharing specifications about your computer.
In addition to indicating a mismatch between source attributes and sequence settings as Jim indicated, the red render bar can also result from applying certain effects. Quoting from Todd Kopriva's blog about the render bars: "red: This segment of the sequence does not have a rendered preview file associated with it. Playback will play by rendering each frame just before the CTI reaches it. Playback at full quality will probably not be in real time (but it might be)." [http://blogs.adobe.com/premierepro/2011/02/red-yellow-and-green-render-bars.html]
My timeline isn't quite that complicated. In fact, the timeline structure is extremely simple, I'm just working with more than 200GB of b-roll footage all at once.
As for my computer specs, I have a MacBook Pro 15" (2012) running OS X 10.8.4 with a 2.6 GHz Intel Core i7 processor and 16GB of RAM. My graphics is listed as: Intel HD Graphics 4000 384MB and my internal hard drive is a 750GB SATA disk running at 7200rpm (although my video files are located on a separate RAID drive)
Looking back at my project, I realize that the nested sequences do not show up red when I place them in the timeline, but I still have problems rendering the final sequence