That's what I'm currently doing. Unfortunatly, I have 200+ categories, with more to come, and maintaining a hierarchy in that fashion is only complicating things.
In other words, in order to maintain a workable single category navigation when you have set group categories (Ex. letters and number). You have to arrange it in such a way that each parent category (of one set group) has the exact same set of sub categories. What i'm trying to achieve is a multi category navigation and to simplify it for authors by organizing the categories into set groups.
I know about custom taxonomies, but a critial plugin hasn't updated to take advantage of it. So I have to keep the main category sets in the default category.