Subcategories of categories not displaying

Hi, I am having a problem with the subcategories of categories not displaying with the categories module.
I have looked and looked at all settings, tried many different settings, and have not found anything that makes it work. Not sure if it's a setting or a bug, but I'm leaning towards a bug because I'm usually good at finding out why things like this don't work (I'm pretty good with Joomla and plugins).

Basically, only the top tier categories are shown, but not sub-categories, even after clicking on the category the sub-category is in. Also, nothing happens when I change between the flat views and nested views, so maybe there is an actual bug?

I have seen screenshots of this functionality in the forums here, but have yet to see an demos of sub-categories being shown in the tree, so I also want to make sure that this functionality actually works, or is there something I need to add to make it work??

Thanks in advance!