Intentionally recursive instead of insert trigger does not want to nest
An INSTEAD OF trigger will not directly call itself when performing operations. 

Consider if you had wanted the trigger to insert the row only if it had an even value, it would look very close to the first statement and you wouldn't want it to recurse.

From the CREATE TRIGGER Page:


  If an INSTEAD OF trigger defined on a table executes a statement against the table that would ordinarily fire the INSTEAD OF trigger again, the trigger is not called recursively. Instead, the statement is processed as if the table had no INSTEAD OF trigger and starts the chain of constraint operations and AFTER trigger executions. 


That doesn't mean that INSTEAD OF can't be part of recursion. If the trigger makes changes to another table, it will call the triggers for those. The triggers could bounce back and forth and create recursion that way.

I believe that you can get the behavior you intend with a combination of INSTEAD OF to control the original insert and an AFTER trigger to add the additional row.