Trying to control my custom post type

Hey everyone, I have worked with a tutorial found on wptuts to develop this custom post type plugin. Everything is working and looking great except that I am trying to customize the parent categories archive page. I have created a parent category and then child categories in my CPT. Every item I add gets assigned to the main (parent)category and a sub-category.

So what I am trying to do is on the front end when someone is looking at the parent category archive page I am trying to have it display all the categories nested in that parent category. Then when someone clicks on one of those sub-cats it shows them all posts in that category. I hope that makes sense.

Here is what I have in my archive page template. I can either get it to work one way or another but cant get it to work like I described above.

<?php
/*
Template Name: Archives for CPT

*/
?>
<?php get_header(); ?>
      <div id="pagename" style="width:200px;float:left;">
        <h2><span>

		<?php if (have_posts()) : ?>

		Exhibitors

		</span></h2>
      </div>
      <div style="width:300px;float:right;padding:20px;">
      <?php get_search_form() ?>
      <div style="height:10px;"></div>
<?php

  $categories = get_categories('taxonomy=sponsors_categories');

  $select = "<select name='cat' id='cat' class='postform'>n";
  $select.= "<option value='-1'>Select category</option>n";

  foreach($categories as $category){
	if($category->count > 0){
		$select.= "<option value='".$category->slug."'>".$category->name."</option>";
		$item= "<a href='".$category->slug."'>".$category->name."</a>";
	}
  }

  $select.= "</select>";

  echo $select;
?>

<script type="text/javascript"><!--
    var dropdown = document.getElementById("cat");
    function onCatChange() {
		if ( dropdown.options[dropdown.selectedIndex].value != -1 ) {
			location.href = "<?php echo home_url();?>/?sponsors_categories="+dropdown.options[dropdown.selectedIndex].value+"/";
		}
    }
    dropdown.onchange = onCatChange;
--></script>

         </div>
         <div style="clear:both;"></div>
    </div>
    <!-- container END here -->
  </div>
  <!-- header END here -->
  <!-- content START here -->
  <div id="content">
    <!-- container START here -->
    <div class="container">
      <!-- main-colum START here -->
      <div id="main-colum" class="two_third">
      	<?php yoast_breadcrumb('<p id="breadcrumbs">','</p>'); 

		?>

                 <?php
				 if ( is_post_type_archive('sponsor_post_types') ) {

				  ?>
				  <?php
					  $args=array(
						'orderby' => 'name',
						'order' => 'ASC',
						'taxonomy' => 'sponsors_categories'
						);
					  $categories=get_categories($args);
						foreach($categories as $category) {
						  echo '<p><a href="' . get_category_link( $category->term_id ) . '" title="' . sprintf( __( "View all posts in %s" ), $category->name ) . '" ' . '>' . $category->name.'</a> </p> ';
							}
					  ?>
				  <?php
			  } else {
				  //wp_reset_query();
				 ?>
                 <?php while ( have_posts() ) : the_post(); ?>

                <div style="width:200px;float:left;"><a href="<?php the_permalink(); ?>">
               <?php if ( has_post_thumbnail() ) {
				    the_post_thumbnail( array( 100, 100 ) );
			   } else {
                the_title(); } ?></a>
                </div>

              <div style="width:200px;float:left;">
              <?php echo esc_html( get_post_meta( get_the_ID(), 'sponsor_phone', true ) ); ?>
              </div>

              <div style="clear:both;"></div>
              <hr />
              <?php endwhile; ?>
              <?php } ?>

<!-- Display page navigation -->

<?php endif; ?>

      </div>
     <!-- main-colum END here -->
	<?php get_sidebar('blog'); ?>
	</div>
    <!-- container END here -->
  </div>
  <!-- content END here -->
</div>
<!-- site-wrapper END here -->
<?php get_footer(); ?>