Readability of extended list items?

[Beth Mazur <mazur -at- MAYA -dot- COM>]

I'm having a discussion with a coworker regarding the readability of extended
list items (as opposed to indented or flush with the left margin) in
print material.

For example, consider the following:

  Level One Head

        This is a paragraph. Note the indent from the level one head.

        Level Two Head

        This is also a paragraph. Level three heads have the same indent as
        paragraphs and level two heads, but their typography is different in
        terms of weight and size.

        However, extended list items have an initial margin in between the
        paragraph/level two head/level three heads and the level one heads.

     o  This is a bullet item.

     o  This is a second bullet item whose text will wrap to the left margin
        of paragraphs and the level two and three heads.

        This is a paragraph. Note that extended lists also includes numbered
        lists as well as bullet lists.

     1. The first step is to...

     2. The second step is ... As with bullet lists, the text will wrap to
        the left margin of paragraphs.

The two resources I have at hand do not address this issue in terms
of readability. A WWW search hasn't been too productive. And I can't
recall ever *seeing* an extended list in print, although my coworker
tells me that it's common.

Any enlightenment would be greatly appreciated.

Beth Mazur
MAYA Design Group