I think nested <url-set> cannot be valid because CSS Images forbids it.
<url-set> is a limited version of image-set(), where only <url> and <url-set> can be used in the part of the <image-set-option> sub-production which would normally allow <image>.
https://drafts.csswg.org/css-ui-4/#typedef-cursor-url-set
The image-set() function can not be nested inside of itself, either directly or indirectly (as an argument to another <image> type).
https://drafts.csswg.org/css-images-4/#funcdef-image-set