Hey David, I just tested this out and it’s working for me. Here’s what I did with my test setup (wp-discourse.pavilion.tech is connected to demo.pavilion.tech).
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Created a new sub-category: Eclipses - Pavilion's Demo Community
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Turned on “Display Subcategories” in WP Discourse Publishing settings.
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Forced a category update in WP Discourse by checking “Force Category Update”.
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The eclipse sub-category appeared in the category list in WP Discourse.
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Publishing to the eclipse category worked as expected.
Could you walk me through some similar steps reproducing the issue?