I see references in the CiviCRM wiki to "L2" and "L3" multi-site configurations - but no documentation on how to do L3 multi-site. Can anyone explain the correct configuration for 3-level multisite?
Not sure yet about SE protocol but there are other options than L1 L2 etc especially if there is no requirement to have separate Drupal domains for each component. For example, we have delivered multi-level permissioned solutions using the Related Permissions extension. This can go as many levels deep as required.
For example if Org X has permissioned relationship to Org Y, which has permissioned relationship to Org Z, then any 'officer' with a permissioned relationship to an Org at any point in the hiearachy will only see the Contacts that their Org, or and sub-Orgs have permissioned relationships to.
This is also explained here and a blog is well overdue. Obviously if you need Drupal sites at each tier then yes the L2, L3 model is one to go for.