Oh, how I do hope to figure out how to do this properly. Would a Zen Cart elder please share the specific file(s) that need editing? It sure would be helpful as a jumping-off point. TIA!
FWIW, my current workaround has been using MySQL and phpMyAdmin to place products within categories having subcategories.
Supposedly, Zen Cart does not like this but I'm unsure why. Regardless, it is possible as I've mentioned. To do it efficiently, what you need to develop is a comprehensive non-Zen database (or spreadsheet with multiple worksheets in my case*) that allows you to quickly export your table values fashioned in the proper MySQL code for easy import into phpMyAdmin.
And I've already written a script to easily fix my products_to_categories table by removing the offending category assignments should I suspect my site is suffering in performance due to this very issue of products listed in categories already having subcategories.
*I have three spreadsheets, one each for products, categories and and manufacturers. I do not do attributes or options. I build whatever I need into each product with custom product table fields. Overboard, yes, but for a reason: portability. Anyway, each worksheet within each spreadsheet is a table with a column for each field. Then in between each column is a column for the MySQl code. This makes it real easy to highlight the worksheet, copy it, paste it into a text editor, and then remove the tabs created between cells. (I recommend JujuEdit from jujusoft.com as it can handle huge files quickly.) Then I copy and paste that into a SQL box on my phpMyAdmin page. Obviously, this is not elegant as it requires a few extra steps, but I believe the effort worth it as I continue to have my doubts about Zen Cart and can quickly move on elsewhere.
BTW, why is Zen Cart not developed for what clearly is desired by much of its user base? Unless the argument is performance-based, there is no reason that this could not be an admin panel on/off switch for there is plenty of research pointing out that when a site is sophisticated and comprehensive in its organization, drill down does not bother a customer in the least.