Using Tabs for Category Navigation – CSS or differ

Hi – A general architecture question from someone who is just getting started with their site.
I would like an overall site architecture which uses tabs to navigate between different areas – ie different categories. I can think of two ways to do this:
1) use sub folders off my site, and place a copy of the index.php file in each sub folder. Add tabs to the CSS or the index.php files and link them together so that one can navigate to each area. I would then have to turn off the category navigation and restrict the loop in each index.php file to show only one category. This would have the benefits of showing the categories in the URI.
2) Use the CSS /modify index.php to display the list of categories as a set of tabs.
The first solution would seem to be more straightforward, with a better solution for showing the categories in the URL links. The second solution seems to be more elegant, and probably better long term.
Does anyone have a recommendation on which path to take? Is there experience here? Does anyone have a CSS which shows tab navigation for categories and which I can use as an example?
If I follow the second path, I am worried about how I could show permalinks including the category (ie http://www.sitename.com/categoryname/month/postid
Is this possible with a hack? Has anyone done it?
Thanks for your advice.