This is one of those situations in which you can't possible be confused enough yet, so you need to read NFPA 110 to deepen you level of confusion. :grin: First you have to figure out this "Level 1, Level 2" stuff. Then you have to figuure out the EPS and EPSS stuff. Then you have to figure out what can, and what cannot, be in the same room. :roll:
NFPA 110, article 7.2.2, says that EPSS cannot be in the same room as normal electrical service (my emphasis) equipment is installed. The EPSS starts at the generator and ends at the load terminals of the transfer switch(es).
In a recent project, I put the generator on the floor above the main electrical room. The transfer switches (one emergency, one optional standby) were within the same room as the main service switchboard, but were separated from the normal equipment by having a set of walls and one door, with a 1-hour fire rating, that isolated the EPSS stuff from the rest of the room.