Not sure about the right approach to fixing that issue:

• resolving source to absolute path for the root dataset and then submodules candidate will be absolute too, simpler option
• trying to preserve a relative path by running git-clone while in the appropriate pwd for it to resolve.

Thank you @bpinsard for looking into this!!!
The former (keep relative) sounds like a more proper fix to do but might overall be much more involved. Looking at a sample run

(Pdb) p dest_path
'/home/yoh/.tmp/datalad_temp_test_install_recursive_relpathkh6xkzg6/dest/sub_ds'
(Pdb) p clone_urls_
['../src/sub_ds']
(Pdb) getpwd()
'/home/yoh/.tmp/datalad_temp_test_install_recursive_relpathkh6xkzg6'

suggests looking into why we are manually creating those relative leading ../ paths and now just keeping as from pwd... might look more into it later unless you beat me to it