Types of recursion

Just a guess: you need more working memory and more complicated processing to parse the second case -- try writing a parser for each!

In the first form (which is like RPN) it's push-on-stack all the way through until the first verb to construct a complete determiner). In the second form you have to first push all the nouns on stack, then keep popping the stack up for each verb to match with the corresponding noun to construct the determiner. Except that the last verb corresponding to the first noun is not a part of the determiner, so you have to check that.

TL;DR: RPN expressions and parsers are simpler than the alternatives.

Human working memory (aka the magic number 7, plus or minus 4 depending on type) is very chunking-aggressive. Everyone can remember a phone number because it's three numbers, where they might have problems remembering ten separate digits, and similarly very complex sentences can be burned down to three or four fragments that each are only one object in memory.

But chunking doesn't work well when there is ambiguity or where the parts can not yet be brought into a single piece. You can take "the car", then "the car" and "in" and "the driveway", then "the car in the driveway" and "of the house", and so on, until the structure of the first memory object becomes too long to recite internally.

With the second phrase, you have "the mouse" and "the cat" and "the dog" and you're adding a fourth object and it's yet another noun so the English language doesn't let /any/ of these things clearly chunk together. There are some center-embedded sentences that chunk more readily, and some languages that allow more same-part-of-speech chunking, but there's an upper limit to what you can do with human neurology.

((This is somewhat related to the preference for front-loaded active voice in writing and speaking technique.))

By some random Googling I found: E. Gibson, Linguistic complexity: Locality of syntactic dependencies, which proposes a model about how much working memory is needed to parse various kinds of syntactic structures, and claims to explain why center-embedding is hard.

It seems to be very popular (1315 citations in Google Scholar), I bet if you look at citing and related papers youl can find lots of discussion.

The term for the second kind of embedding is center embedding, by the way. It's got nothing to do with whether prepositional phrases or tensed phrases are involved; the issue is whether the embedding occurs at the edge of the phrase or, as the name suggests, in the center. Unfortunately, I'm not familiar with the literature on that, so I can't tell you what explanations have been proposed for why it's harder to process. But this is the term you'll need to Google for.

Cf. Chad Gadya.

Maybe it's just that people don't expect the second structure or aren't used to it? I predict that exposing someone to 2. sufficiently will end the confusion.

That's all. Surely, (...) the normal explanation is always worth considering?"