Glad to hear you were able to sort it out! I was not immediately able to reproduce the behavior described in your OP.
At this time, the default_categories_ site settings should only apply to the categories explicitly selected in the settings’ category pickers. Subcategories must be manually selected and are represented with their parent category in the list of options:
In the screenshot above, Suppressed Subcategory is a subcategory of Admins.
If you find that these settings are behaving unexpectedly at any point in the future, please let us know the steps to reproduce the problem!