another query_posts(); problem

Been trying to get this work on a site I’m working on, bleachblack[dot]com

Referred to this post (http://wordpress.org/support/topic/57912?replies=9#post-312858) and tried to implement the code, but nothing changed. Obviously I’m doing something wrong, need some help…

Here’s my code –

<?php get_header(); ?>

	<?php if (have_posts()) : ?>
	<?php $paged = (get_query_var('paged')) ? get_query_var('paged') : 1; ?>
	<?php query_posts('cat=1&paged=$paged'); ?>
		<?php while (have_posts()) : the_post(); ?>

		<div class="post">
			<h2><a href="<?php the_permalink() ?>" rel="bookmark"><?php the_title(); ?></a></h2>
			<div class="postmetadata"><?php the_time('m.d.Y') ?> | <?php comments_popup_link('No Comments »', '1 Comment »', '% Comments »'); ?></div>
			<div class="entry">
				<?php the_content(); ?>
			</div>
		</div>

		<?php endwhile; ?>

  	<div class="navigation">
			<?php if(function_exists('wp_pagenavi')) { wp_pagenavi(); } else { ?>
			<div class="alignleft"><?php next_posts_link('&laquo; Older Entries') ?></div>
			<div class="alignright"><?php previous_posts_link('Newer Entries &raquo;') ?></div>
			<?php } ?>
		</div>

	<?php else : ?>

		<h2>Not Found</h2>
		<p>Sorry, but you are looking for something that isn't here.</p>

	<?php endif; ?>

<?php get_sidebar(); ?>
<?php get_footer(); ?>