It can be traced that, in minimal example from question, following definition of System`Convert`TeXFormDump`maketex function is used:
System`Convert`TeXFormDump`maketex[str_String?System`Convert`CommonDump`EmbeddedStringWithLinearSyntaxQ] := ( System`Convert`CommonDump`DebugPrint["------------------------------------"]; System`Convert`CommonDump`DebugPrint["maketex[str_String?EmbeddedStringWithLinearSyntaxQ]"]; System`Convert`CommonDump`DebugPrint["str: ", str]; System`Convert`TeXFormDump`MakeTeX[System`Convert`CommonDump`RemoveLinearSyntax[str, System`Convert`CommonDump`Recursive -> True]] ) Above definition calls System`Convert`CommonDump`RemoveLinearSyntax function with System`Convert`CommonDump`Recursive option. Problem is that, as we can see in function's options:
Options[System`Convert`CommonDump`RemoveLinearSyntax] (* {System`Convert`CommonDump`ConvertRecursive -> False} *) it has ConvertRecursive and not Recursive option. At least in versions 9 and 10. In v8 option name is Recursive.
To fix this bug, we can replace option, in maketex definition, with correct one:
ToBoxes @ TeXForm[""]; (* preload; do not remove! *) If[FreeQ[Options[System`Convert`CommonDump`RemoveLinearSyntax], System`Convert`CommonDump`Recursive], DownValues[System`Convert`TeXFormDump`maketex] = DownValues[System`Convert`TeXFormDump`maketex] /. Verbatim[System`Convert`CommonDump`RemoveLinearSyntax][arg_, System`Convert`CommonDump`Recursive -> val_] :> System`Convert`CommonDump`RemoveLinearSyntax[arg, System`Convert`CommonDump`ConvertRecursive -> val] ]; It will fix maketex definition, in versions, in which RemoveLinearSyntax has different option than used in maketex.
After above fix, cell, from question, is correctly converted to $\TeX$, in all three tested Mathematica versions.
