If you want to use the category image set in admin with the categories sidebox, you can add its display just by invoking $box_categories_array[$i]['image']. This contains the filepath of the current category's image, and you can insert it where you like in /includes/templates/your_template/sideboxes/tpl_categories.php.
If you want to substitute an image of your choice for the category name, you can use Categories Dressing from Free Addons. It is also built to allow hover effects on the image.


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