Hello, I’m having the same problem as well. I create categories and nothing happens, just like the original poster. I am starting from a completely fresh install of wordpress with just the store locator and tagalong plugins and default theme. Funny thing is, it DOES work on a linux-based host but has the problem on our production windows server 2008 based host.
I’m attaching the phpinfo() report from both servers to help diagnose the problem.