Smalls: Did you ever figure this out?
I also modified my templates and categories to do the drop down and keep the subcats open while browsing within. I detailed the method
HERE.
I looked at what balinor suggested and it makes sense. There are 3 references to 'ORDER BY' however 2 of them are order by $sql_tbl[categories].order_by first and changing the other to match makes no difference in my case.
I'll keep plugging away myself and post the results but if you have any ideas, I'm all ears.
Thanks,
Andrew