Hi there, my apologies for the belated reply, I just returned from vacation.
Are you still experiencing this issue?
If you check a category from 'Categories' on the left and click 'Add to Menu', the newly added block (right) should have some extra options, as shown in the plugin screenshots (http://wordpress.org/extend/plugins/category-posts-in-custom-menu/screenshots/)
One possible reason why you see no differences in Appearance > Menus would be if you have another plugin that works on Appearance > Menus and has a higher priority than mine.
The reason for this is purely technical, it is because WordPress currently has no 'hooks' in one specific class so I have to override that class. If another plugin has overridden that class as well and with a higher priority, then mine won't show any differences in Appearance > Menus.
I'd first advise you to disable other plugins, to see if this resolves the issue. Please let me know if this is indeed the case. (If future versions of WordPress has hooks in the Walker_Nav_Menu_Edit class, I'll be sure to use them and this won't be an issue.)