The problem with interleaved posting is that it becomes very confusing once you get beyond two or three replies. Especially when you have multiple people, it becomes difficult to track the nesting level of the current line so that one can determine who is "speaking" at the moment.
On phpBB bulletin boards, the usual custom seems to be to quote the person you're replying to, and maybe the person they quoted, if absolutely necessary. The reply depth should never go high enough to cause problems. This works well.
That's fine for bulletin boards, where all you have to do is scroll up to read the rest of the history. However, until very recently (i.e. GMail) viewing the history behind a particular e-mail message required you to go back through all your e-mail and find the previous messages in the thread. On a busy list, this could be quite a bit of trouble. Hence, having the entire history in the message itself could be quite useful.
You're supposed to prune all extraneous data; usually you can drop off anything beyond 2 levels of quotation and in the cases you cannot, the text is probably well-structured enough.
My brother has a tendency towards long-form, interleaved email correspondence. The result is that every email thread I've ever had with him spins off into an ever-increasing number of simultaneous discussions, all interleaved. We take longer and longer to reply to each other, until one of us just stops, and then it gets picked up again some months later.
