This is just plain wrong.
I created some "Headline" categories and updated the category registry accordingly for the News module:
Cat1
Cat1/Cat1a
Cat1/Cat1b
Cat2
I can create news articles against any of those categories. All good so far.
But, if I create an article against Cat1a it's displayed on the homepage as:
Cat1a:Headline_text
rather than:
Cat1:Cat1a:Headline_text
If I display Cat1a news then the article is shown. All good. But if I display Cat1 news then it's not, despite the article belonging to a sub-category of Cat1; Cat1a.
So, what's the point of having sub-categories of news when they're all treated as separate folders anyway?