That’s interesting conceptually. Coming from a games background we don’t tend to think about the state machine as the primary element but wrap them inside other concepts. So an Entity might contain multiple state machines but communication and update is mediated by entities rather than between the state machines themselves. So I’m nodding along to the issues you raise but also feel like they get solved quite neatly with the game approach.

Sub-state machines or hierarchical state machines have been a thing in games for quite a long time. It’s a natural extension particularly for AI although IMO it’s mostly reducing a cognitive burden.