Thanks for the feedback. I added the "show post counts" option to the widget (v1.2) and have the count displayed outside the href. I also made the list display as an unordered list (ul li).
I am not sure exactly what to do about permalinks. The current links (?m=%year%%monthnun%&cat=%category%) work for me with permalinks turned on.
I think in order to have the category month URL in the permalink format, the permalink would have to have a custom structure with the category, year and month in it (e.g. /%category%/%year%/%monthnum%/%post_id%/), otherwise I am not sure what the URL is that shows posts for a particular category and month (other than ?m=%year%%monthnun%&cat=%category%).
For example with the permalink structure /%year%/%monthnum%/%day%/%postname%/ what is the URL to see posts for a particular category and month, since %category% isn't part of the structure?
WordPress has functions for getting the permalink for a month (get_month_link) or a category (get_category_link), but nothing for both (get_category_month_link?).