I have digMeta 1.3.5 installed and the latest Ventrian NA module, I just tried creating some sub-categories.
I have a category for Product News, I wanted to create sub-categories for each individual product.
I added the first product sub-category "Syndication", refreshed the categories in WLW (beta) and it updated showing:
product news
product news > syndication
But if I try to add a 2nd product sub-category "Tag Cloud" it shows as a child of the 1st sub-category:
product news
product news > syndication
product news > syndication > tag cloud
Can you please investigate, sub-categories are a great enhancement.