Thanks for the tip thesacredpath.
I have already contacted support with a link to this thread. However, my personal view is what appears to worked for one or two, I don't think it's going to be the rule for all [with utmost respect to you and to other members trying to help as well to all wp members, as this is not a personal attack, if it sounds like that].
Last time when same problem occured, support had to go through my entire 4 blogs to get back my categories and sub-categories working and they had to go through this procedure pretty good times since not all and everything was restored to normal. The good thing is that I always keep a copy of my work so I had to advice them of any missing ones and guide them until they were finally restored and working as I originally had them. My gratitude and cudos to support was of course a follow-up to their work done.
With that said, nope, I'm not willing to go into 4 blogs and manually restore back what it seems to be a bug and not of my own fault. Thanks for sharing the tip and please appreciate the fact that if something is broken and its not due to the user, then wordpress staff should try and fix it.
I also understand that since 2.5 was introduced, minor problems would occure. I consider this one just like that. And finally, since I am also a wordpress.org user, please allow me to say that at least if I had a problem with my privately hosted blogs, my natural move should be to contact my hosting plan provider, whom I consider responsible for maintaining by blogs hosted intact. The same case with wp.com, don't you think so?