See the wikitext and the output below. We have stray <meta> tags left behind. Looks like VE is probably working around this, but we should not be leaving them behind.
[subbu@earth tests] echo "X{{echo|<ref>foo {{echo|<b>bar</b>}} and {{echo|baz}} boo</ref>}}\n<references />" | node parse <!DOCTYPE html> <html prefix="dc: http://purl.org/dc/terms/ mw: http://mediawiki.org/rdf/"><head prefix="mwr: http://en.wikipedia.org/wiki/Special:Redirect/"><meta property="mw:articleNamespace" content="0"/><meta property="mw:parsoidVersion" content="0"/><link rel="dc:isVersionOf" href="//en.wikipedia.org/wiki/Main%20Page"/><title></title><base href="//en.wikipedia.org/wiki/"/><link rel="stylesheet" href="//en.wikipedia.org/w/load.php?modules=mediawiki.legacy.commonPrint,shared|mediawiki.skinning.elements|mediawiki.skinning.content|mediawiki.skinning.interface|skins.vector.styles|site|mediawiki.skinning.content.parsoid&only=styles&debug=true&skin=vector"/></head><body data-parsoid='{"dsr":[0,81,0,0]}' lang="en" class="mw-content-ltr sitedir-ltr ltr mw-body mw-body-content mediawiki" dir="ltr"><p data-parsoid='{"dsr":[0,65,0,0]}'>X<span about="#mwt2" class="reference" id="cite_ref-1" rel="dc:references" typeof="mw:Transclusion mw:Extension/ref" data-parsoid='{"dsr":[1,65,null,null]}' data-mw='{"parts":[{"template":{"target":{"wt":"echo","href":"./Template:Echo"},"params":{"1":{"wt":"<ref>foo {{echo|<b>bar</b>}} and {{echo|baz}} boo</ref>"}},"i":0}}]}'><a href="#cite_note-1">[1]</a></span></p> <ol class="references" typeof="mw:Extension/references" about="#mwt4" data-parsoid='{"src":"<references />","dsr":[66,80,2,2]}' data-mw='{"name":"references","attrs":{}}'><li about="#cite_note-1" id="cite_note-1"><span rel="mw:referencedBy"><a href="#cite_ref-1">↑</a></span> foo <meta typeof="mw:Transclusion" about="#mwt7" data-parsoid="{}"/><b data-parsoid='{"stx":"html"}'>bar</b><meta typeof="mw:Transclusion/End" about="#mwt7" data-parsoid="{}"/> and <meta typeof="mw:Transclusion" about="#mwt8" data-parsoid="{}"/>baz<meta typeof="mw:Transclusion/End" about="#mwt8" data-parsoid="{}"/> boo</li></ol> </body></html>