Do you know if an m3u can reference another m3u?

Not in the original M3U specification, no. Perhaps you can add your own extension to the text stored in the M3U file so that it works with your software. It won't play in WinAmp, but hey...

Another option would be to simply create folders for all the playlists, and have the M3Us in each folder only point to songs. That might be a little cumbersome I would agree.

Does anyone know of any PC-based software that supports nested M3Us? In other words, is there already a standard for doing it?