Errors: "INSERT EXEC statement cannot be nested." and "Cannot use the ROLLBACK statement within an INSERT-EXEC statement." How to solve this?

This is a common issue when attempting to 'bubble' up data from a chain of stored procedures. A restriction in SQL Server is you can only have one INSERT-EXEC active at a time. I recommend looking at How to Share Data Between Stored Procedures which is a very thorough article on patterns to work around this type of problem.

For example a work around could be to turn Sp3 into a Table-valued function.

This is the only "simple" way to do this in SQL Server without some giant convoluted created function or executed sql string call, both of which are terrible solutions:

1. create a temp table
2. openrowset your stored procedure data into it

EXAMPLE:

INSERT INTO #YOUR_TEMP_TABLE
SELECT * FROM OPENROWSET ('SQLOLEDB','Server=(local);TRUSTED_CONNECTION=YES;','set fmtonly off EXEC [ServerName].dbo.[StoredProcedureName] 1,2,3')

Note: You MUST use 'set fmtonly off', AND you CANNOT add dynamic sql to this either inside the openrowset call, either for the string containing your stored procedure parameters or for the table name. Thats why you have to use a temp table rather than table variables, which would have been better, as it out performs temp table in most cases.