Maynards - I don't know if it's related to your issues, but you are missing brackets here
Code:
#categories li a {
	background: url(../images/catbutton.gif) no-repeat;
}

/*change  bullet when a category w/o bg image is open to subs:*/

#categories li a.cat-parent-text {
To get the hover on the All Products link, add to the hover rule:
Code:
/* top category hover effects*/
#categories li.cat-top a:hover, #categories li a.category-links:hover {
    color: #dd6633; 
    background:  #ddeeff url(../images/catbghover.gif)no-repeat;
    } 

/* subcategory hover effects*/
#categories li li.cat-subs a:hover, #categories li li.cat-products a:hover {
    color: #aa9966; 
    background: #ffb9ff url(../images/catbghover.gif)no-repeat;
    }