This is weird. But I thought I'd report it in case it helps anyone else.
We were having problems with our categories not filtering at all. The plugin always showed items in all categories no matter what category was clicked. I've seen reports in this forum suggesting that it might be related to multiple word category titles, which all of ours have.
However when I went into the Portfolio Items --> Options and deselected the "Sort categories by name" option they started filtering correctly. Then I was able to reselect the sort categories by name and they still filter correctly.
I have no idea why it did that. But now the plugin is working as expected for us. :)