I also have a problem similar.
Now, when I post, the category automatically gets changed back to "uncategorized" the second it's posted.
This is a MAJOR problem, because I use subscribe2, which emails all my users with the wrong permalink!
If I go back in, I can change it to the correct category, but only AFTER all my users are emailed.
I posted a few messages on the forum on the writers' site, but never got a response, in fact my comments are still sitting in moderation.
I also cannot deactivate the plugin, because I'll lose all my category setups.
I do realize that this plugin is FREE, however the way it's set up is that you cannot remove it without messing up the entire blog. I think the author has a bit of a responsibility to fix this because of this.