When you include a tag as span yourself, as far as I can imagine ***, you don’t actually close it - these tags do not have this ability. What you are actually doing leaves it open. And when you leave things open, the browser gets freedom and closes them yourself, usually at the end of its parent closing tag.
So, in your example, in case nº2, you get a built-in block that goes all the way to the end of the element p. Now inside this inline block you add a block level element. Well, this time and again ... by placing the block inside the built-in (built-in) block, the browser uses one more of its freedom and (basically) puts all the contents surrounding the block element, as many elements of the block block as it needs before (1 or 2 - no more).
In your case, you get one “anonymous” block around the text preceding the inserted div (“to see if I can inline the inline block”).
Since the blocks are stacked vertically, this is not surprising, then the look you get in the second paragraph.
See color fiddle: jsfiddle.net/T7ByE/1/ (not clickable) to see it better.
Relevant Links
display: block inside display: built-in
*** it kind'a seems that depending on your content spaces may actually be closed *
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