Weird transparency behavior

Hi I'm having some strange things happen when using any kind of transparent shader.

This is an empty scene, nothing in it but for a camera and two capsules, one completely inside the other. The shader on both capsules is the built in Transparent/Diffuse: Capsule

However, from a different angle (notice the red X axis):

Capsule02

Same thing happens with any transparent shader - even VertexLit - except for cutout.

Again - the capsules are completely one inside the other (one large and one small), not one in front of the other or anything. Anyone knows why this happens?

http://www.youtube.com/user/JessyUV?feature=mhum#p/c/31F6A116DCCC9F61/12/N9IbcGpOcIg

When rendering transparent objects, the depth buffer cannot be used, so objects will be sorted back to front in rendering, which will not always yield perfect results for intersecting objects.

In this case, however, the actual problem seems to be that you have an opaque material with a transparent shader. Try setting the alpha value of your shader to something smaller then 1 to actually render objects transparent. This will not solve the sorting issue, but make it less apparent, since when the capsules are actually transparent, both will always be visible.