Yup. Plausible deniability only works if a strategy is unlikely to be known by an adversary. In this case, it is widely known that TrueCrypt has hidden volume

Yup. Plausible deniability only works if a strategy is unlikely to be known by an adversary. In this case, it is widely known that TrueCrypt has hidden volume capabilities, so there's not much of a veil of ignorance to hide behind. Btw: there's no explicit restriction on N-level deep of hidden volumes, but TC won't automatically make the outer ones read-only.