My directions were very poor. Let me try again:
1) Under Options >> Permalinks, Set your Category Base to /category
2) Use the following hack (modified from bloggerholic), that removes the base category from links (unless it's a multi-page link). Find the function "get_category_link($category_id)" in category-template.php (in the wp-includes folder) and insert the following hack, like so...
function get_category_link($category_id) {
global $wp_rewrite;
$catlink = $wp_rewrite->get_category_permastruct();
///////// ADD FOLLOWING LINE ///////
if (!(isset($_GET['paged']) && !empty($_GET['paged']))) $catlink = str_replace('/category', '', $catlink);
///////////////////////////////////
3) Next, you have to fix the multi-page problem that results from the above hack. For some reason, multi-page permalinks require a Category Base. So we have to add the category base back in for the function that produces the link to page 2, next_posts(). Make the following change to the link_template.php (in the wp-includes folder):
function next_posts($max_page = 0) {
//////// ADD THE FOLLOWING LINES ////////
$the_unmodified_link = clean_url(get_next_posts_page_link($max_page));
if (preg_match('/category/', $the_unmodified_link)) echo $the_unmodified_link;
else echo preg_replace('/yourdomain\.com/' ,'yourdomain.com/category', $the_unmodified_link);
/////// COMMENT OUT ORIGINAL CODE ////
// echo clean_url(get_next_posts_page_link($max_page));
/////////////////////////////////////
}
Notes:
1) replace yourdomain.com, with your domain, but do not prefice with www, and also escape non-alphanumeric characters (such as . and /)
2) You can see an example of this hack working on my site, but it has two excpetions: wordpress is installed in a subdirectory, and the Category Base was changed to archive/, so the exact code I used is a little different, so the resulting links are harvardmagazine.com/web/breaking-news for page 1 and harvardmagazine.com/web/archive/breaking-news/page/2
Hope that was more clear Charbax.