Thanks so much for your help. Though it didn't work.
I followed your instructions exactly, with not much luck.
Below is my code for /customer/main/subcategories.tpl
{* $Id: subcategories.tpl,v 1.55.2.1 2006/06/27 08:20:37 svowl Exp $ *}
{if $active_modules.Bestsellers ne "" and $config.Bestsellers.bestsellers_menu ne "Y"}
<p />
{include file="modules/Bestsellers/bestsellers.tpl"}
{/if}
<p />
{if $active_modules.Special_Offers}
{include file="modules/Special_Offers/customer/category_offers_short_list.tpl"}
{/if}
{*if ($navigation_page eq "")||($navigation_page eq "1")}{$current_category.description}<p />{/if*}
{capture name=dialog}
{assign var="tmp" value="0"}
{foreach from=$subcategories item=c key=catid}
{if $c.category}{assign var="tmp" value="1"}{/if}
{/foreach}
{if $subcategories}
<table cellspacing="5" width="100%">
{foreach from=$subcategories item=subcat name=sl}
{if $smarty.foreach.sl.index is div by 3}<tr>{/if}
<td width="33%" class="{if $smarty.foreach.sl.index is div by $cells}SubCat2{else}SubCat1{/if}" onmouseover="this.className='SubCatOver'" onmouseout="this.className='{if $smarty.foreach.sl.index is div by $cells}SubCat2{else}SubCat1{/if}'" onclick="parent.location='home.php?cat={ $subcat.categoryid }'" align="center" valign="top">
<a href="home.php?cat={ $subcat.categoryid }"><img src="{if $subcat.icon_url}{$current_category.icon_url}{else }{$xcart_web_dir}/image.php?id={$subcat.categoryid}&type=C{/if}" alt="" /></a><br>
<a href="home.php?cat={ $subcat.categoryid }">
<font size="{if $current_category.parentid eq "0"}2{else}2{/if}"><b>{ $subcat.category|escape }</b></font></a><br>
{ $subcat.description|escape }
{if $config.Appearance.count_products eq "Y"}
{if $subcat.product_count}
{ $subcat.product_count } {$lng.lbl_items}
{elseif $subcat.subcategory_count}<br>({ $subcat.subcategory_count } Subcategories)
{/if}
{/if}
</td>
{if $smarty.foreach.sl.iteration is div by 3 or $smarty.foreach.sl.last}</tr>{/if}
{/foreach}
</table>
{/if}
{if $tmp and $products ne "" }
<br clear="left" />
<hr size="1" noshade="noshade" />
{/if}
{if $products}
{if $sort_fields}
<div align="right">{include file="main/search_sort_by.tpl" sort_fields=$sort_fields selected=$search_prefilled.sort_field direction=$search_prefilled.sort_direction url="home.php?cat=`$cat`&"}</div>
{/if}
{if $total_pages gt 2}
<br />
{ include file="customer/main/navigation.tpl" }
{/if}
<hr size="1" width="100%" />
{include file="customer/main/products.tpl" products=$products}
{/if}
{if $products eq "" and $tmp eq "0"}
{$lng.txt_no_products_in_cat}
{/if}
{/capture}
{include file="dialog.tpl" title=$current_category.category content=$smarty.capture.dialog extra='width="100%"'}
<br />
{if ($navigation_page eq "")||($navigation_page eq "1")}{$current_category.description}<p />{/if}
{if $products eq ""}
{if $f_products ne ""}
<p />
{include file="customer/main/featured.tpl"}
{/if}
{/if}
{ include file="customer/main/navigation.tpl" }
Where I we have gone wrong? Much appreciated.