After looking into the code, it turns out it's because history_expand basically works as a finite state machine to determine whether it should expand occurances of ! it runs into, so of course can't handle subcommands (more specifically, quotes inside quotes). This leads to interesting patterns though:
echo '!!' # doesn't expand echo "$(echo '!!')" # expands echo "$(echo "$(echo '!!')")" # doesn't expand echo "$(echo "$(echo "$(echo '!!')")")" # expands echo "$(echo "$(echo "$(echo "$(echo '!!')")")")" # doesn't expand The reason it appeared to work in 2.05b was because it simply didn't account for double quotes, which meant it had things like: echo \' !! \' # expands echo "'" !! "'" # doesn't expand This seems like an architectural issue, so I probably wouldn't be able to fix it myself (I've never looked at bash's source until now)—logically, I'd expect the history expansion to happen in the same place as the variable use expansion, but there must be a reason that's not the case.
