Hey Carla, thanks for getting back to me so quickly and for your detailed feedback, much appreciated.
Firstly, don't mind that "Zemanta" name my plugin has, as well as that "Open Dashboard" button, since it's just a bit updated version we're using on our test blog. But please accept my apologies for it, since I did not want you to get any more confused. I'll be more careful in the future.
As for your problem — I'm glad you got your related posts working eventually, since some themes (like in your case) need to get that box ticked, next to the "Auto insert" option. But I'm pretty sure that the "Display Related Posts in Feed" option should not play any role in it. Please correct me if I'm wrong on this.
Secondly — aren't you able to see your categories listed in your plugins settings? How many categories does your blog have? Any chance you could send us a screenshot of your plugin settings?
You can always contact me via email (support[at]zemanta[dot]com), if you wish to keep these info private.
Anyways, do let me know what's up with your categories and I'll do my best to help you out!
Take care & I'm looking forward to your reply!