I'm not having an issue with nested categories. A second level category cannot be used as a first level category (natural vB limitation and as I get time I'll look at seeing if this can be resolved or not), but will act as normal when placed as a second level with a parent first level category.
However the category I bolder and italicized wasn't included, and that needed to be for it to work properly. The key to the tabs (and I'll seriously have a look at seeing if I can make this a fail safe) is that you need an initial parent category to hold them in and excepting the Favourites, that category must be the natural parent on the first level.
Ahh ok, so you need the categories selected all the way up to the top... interesting, I had no idea. But thanks for that! I'm ok with doing it, it's not a big deal, I just had no idea I had to. =)