Hi Vanessa,
You can only nest Active Directory security groups into SharePoint groups, so bear that in mind when designing security. Normally, SharePoint itself will only show the direct members of the group (X,Y,Z, and the nested groups). Composer seems to behave the same way (not sure if that's the type of the workflow you're working on).
However, in the solution itself if you use a Workflow Participant control set to use a drop down as a system control, it will actually iterate through all nested groups and break them out into individuals. Likewise for using the SharePoint Users control to populate a repeating table on the form.
------------------------------
Joshua Whitener | Winshuttle Evangelist
Exxon Mobil Corporation | 8326258441
------------------------------