Remove Category Archive & permalinks?

I’m having a problem. I’m working on a site for a client, and this is the problem I’m having. He wants to skip the category archives. Basically, if he has posts on rock, if he click on rock, he wants to be taken to the latest post in said category, dynamically and directly. At first, I thought, no problem, I made category templates, and put a loop to grab the one latest out of the category and put it on the category archive page. Each post also has subcategories, so if he clicks on Retro for instance, he wants to be taken to the latest post in that category. There is also a top nav above the post, and he wants it to go through posts.
Basically, if he clicks on rock and the next, what I get with this method is “/category/rock/page/2” but he wants it to be “/categoryy/rock/postname”. So, is there any way I could jump over the category archive and go straight to the latest post dynamically, on a certain amount of categories only?
Next, we’re having a permalink problem. If I have a category called Rock, and a subcategory called Folk, the permalink for the folk category is shown as /category/folk . Any idea what’s going on and how to fix that? I’ve read something about the db having problems in another post, but I don’t know what they mean exactly. They said something about terms and taxonomy tables I believe.
And last problem ius this other permalink problem. We have a cat called Rock, and a category called Retro. The permalink is coming as /category/retrorock, even if I tried to set the slug to retro.
There we go, three pretty weird problems. Any help would be very very appreciated.