Yes, it sounds crazy....It might be.
The final updatepanel does not appear to trigger anything, it just refreshes the update panels and does not call back to the usercontrol hosting it.
Any ideas?
EDIT: I got it posting back, however the controls inside the final usercontrol have lost their data...I'm thinking its because the main repeater is rebinding on each postback...Not sure where to take this one now.
I would suggest you start by removing the UpdatePanels at first, and make sure your control orgy is working correctly with postbacks. Once you have that working, try adding the UpdatePanels back in from the bottom up.
If you set the UpdateMode property to Conditional (default is Always) on both UpdatePanels it should stop the outer UpdatePanel triggering when only the usercontrols updatepanel should have refreshed.