When using cloze deletions, you cannot change the double braces used to mark cloze deletions; instead, you can put a space between any double closing braces that do not indicate the end of the cloze, so {{c1::[$]\frac{foo}{\frac{bar}{baz}}[/$] blah blah blah.}} will not work, but {{c1::[$]\frac{foo}{\frac{bar}{baz} }[/$] blah blah blah.}} will (and LaTeX ignores spaces in math mode, so your equation will render the same).