Nested APITs are excessively opaque

I tried this code:

fn foo(iter: impl IntoIterator<IntoIter = impl Sized>) {
    iter.into_iter().next();
}

I expected to see this happen: compiles successfully

Instead, this happened:

error[E0599]: no method named `next` found for type parameter `impl Sized` in the current scope
 --> src/lib.rs:2:22
  |
1 | fn foo(iter: impl IntoIterator<IntoIter = impl Sized>) {
  |                                           ---------- method `next` not found for this type parameter
2 |     iter.into_iter().next();
  |                      ^^^^ method not found in `impl Sized`
  |
  = help: items from traits can only be used if the type parameter is bounded by the trait
help: the following trait defines an item `next`, perhaps you need to restrict type parameter `impl Sized` with it:
  |
1 | fn foo(iter: impl IntoIterator<IntoIter = impl Sized + Iterator>) {
  |                                                      ++++++++++

For more information about this error, try `rustc --explain E0599`.
error: could not compile `scratch` (lib) due to previous error

Meta

rustc --version --verbose:

rustc 1.76.0-nightly (f5dc2653f 2023-11-25)
binary: rustc
commit-hash: f5dc2653fdd8b5d177b2ccbd84057954340a89fc
commit-date: 2023-11-25
host: x86_64-unknown-linux-gnu
release: 1.76.0-nightly
LLVM version: 17.0.5

@rustbot label A-impl-trait T-types

Reproduce the nested APIT example from src/lib.rs with the reported rustc version, then compare the compiler's behavior with the expected successful compilation. Done means the example compiles successfully or the diagnostic behavior is corrected and verified against the same reproduction.