Eventually this should all be manageable by libswarm for various combinations of containers on baremetal, containers on containers, or containers on VMs.
The use case we're trying to solve here is a tad different though: it's to provide virtual infrastructure for the "first level" i.e. in the case of Docker the outer container host. For Docker the answer could be EC2, since Docker itself doesn't need VT. However that precludes you from using KVM in any layer below, which in turn means Linux only and fairly simple networking (no multicasting even in VPC, and hence no VXLAN for example)
We very much wanted to create something to assist OpenStack developers in developing OpenStack itself. It should be especially useful for projects such as Nova, Neutron and Ironic.
The levels below are required to make an IaaS cloud look more like the datacenter. The underlying assumption is that the bigger flexibility you have in datacenter deployments is beneficial, especially when we talk about any application not specifically designed for the cloud.
What you describe is accurate. In fact, there's one level more because the Linux instance you run is already running as a nested guest. So in your scenario there's 3 hypervisors involved (Amazon Xen, Ravello HVX, KVM) and then your Docker host.
More seriously, I am very bullish on Docker myself. But I see it as a supplement rather than a replacement for virtualization.