Section 4.3.2 (#DSFLT) discusses floating texts and gives an example of a frame story that contains stories within the frame story. This seems to me to be different from a situation where the frame story *quotes* a whole text. I bring this up because this section ends with the following: "The floatingText element should only be used for complete texts which form a part of the text being encoded. Where a character in one narrative quotes from some other text or narrative, fully or in part, the quote element discussed in 3.3.3 Quotation should be used instead." I read this as saying that, if you quote an entire text, you should not use <quote> with a nested <floatingText> element but use only <quote>. It seems to me that it would be ontologically correct to include both <quote> and the nested <floatingText>, even in the examples given -- after all, a character in one narrative quotes from some other text or narrative, no?
An additional reason to make it clear that you should use <quote><floatingText> even when quoting entire texts is that, if you use only <quote> (as above), you are limited by the content model of <quote> in what structure you can tag within the quoted passage.