The page on permalinks suggests that %category% will display the subcategories as well as nested directories in the URI, but I find only the top category is used in the URI. http://codex.wordpress.org/Using_Permalinks#Structure_Tags
I am using /%category%/%postname% for my structure and I want the links to posts to include categories and subcategories but only categories are used in the URI.
I am using 2.0.1