Can an inline element contain a block element for instance: can a list have a paragraph?
Leaving aside the fact that LI and P are both block level ...
It's never valid to do so, but in behavioural terms, sometimes you can nest a block level element inside a inline level one, but it depends on the browser parser.
For example, in FireFox 3.x, with this markup
foo
bar
baz
will display foo, bar, and baz all in italics.
But this markup, replacing the inline element with inline element
(which also has italics as its default rendering)
foo
bar
baz
will only display foo in italics.
JSFiddle for this
Other browsers do not behave the same. Which is one reason why you should stick to using valid markup.