I know that DIV inside LI isn't allowed, but I've seen it lately on many "big" websites like Smashing Magazine, Web Designer Wall... etc.
I tried to validate sites, and they have errors, but nothing about DIV in LI?!
So can I use it inside LI, and I need it to be valid?
Yes it is valid according to xhtml1-strict.dtd. The following XHTML passes the validation:
<?xml version="1.0"?>
<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN"
"http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd">
<html xmlns="http://www.w3.org/1999/xhtml" xml:lang="en" lang="en">
<head>
<meta http-equiv="Content-Type" content="text/html; charset=utf-8" />
<title>Test</title>
</head>
<body>
<ul>
<li><div>test</div></li>
</ul>
</body>
</html>
As an addendum: Before HTML 5 while a div inside a li is valid, a div inside a dl, dd, or dt is not!
If you look at xhtml1-strict.dtd, you'll see
<!ELEMENT li %Flow;>
<!ENTITY % Flow "(#PCDATA | %block; | form | %inline; | %misc;)*">
<!ENTITY % block
"p | %heading; | div | %lists; | %blocktext; | fieldset | table">
Thus div, p etc. can be inside li (according to XHTML 1.0 Strict DTD from w3.org).