1) create two nested categories like this:
2) create a post and file it under ‘Child’ category.
instead of expected link to the ‘Child’ category, you can see NOTHING on the Sidebar under ‘Categories’ section.
and yes, since my categories has an hierarchical structure, Category widget has a ’Show Heirarchy’ option turned on. I hope it does not implies any ’security over features matter’ and allowed not only on the paid hosted wp install.
I also mentioned this bug in the "non-empty subcategories are NOT displayed on the sidebar" forum thread (a week ago; no reply to feedback yet), before that I’ve asked in this thread (more than month ago; no reply yet), also this issue was filed as a feedback on 04/19 (and I got one reply from Andy).
after I had to study http://trac.wordpress.org I found that Ryan made changes into relevant functions, not sure if they fix this bug or ported into MU core.