it's with a great pain that I (re)read this in the denali ctp3 documentation:
"The series of cascading referential actions triggered by a single DELETE or UPDATE must form a tree that contains no circular references. No table can appear more than one time in the list of all cascading referential actions that result from the DELETE
or UPDATE. Also, the tree of cascading referential actions must not have more than one path to any specified table. Any branch of the tree is ended when it encounters a table for which NO ACTION has been specified or is the default."
Any hope you remove this limitation ? this is a real pain and a minus if compared to other DB ..
I am sorry to hear your pain. We will not be removing this limitation in SQL Server "Denali". We will consider it for a future version of SQL Server. This didn't make the cut given the other requests and features.