Did you modify include/categories.php according to the very first post in this thread?
I slightly improved the output of this mod, but the main work is described here
http://forum.x-cart.com/showpost.php?p=244930&postcount=1
Please read it carefully
If you choose my variant of template you can either use following lines or omit them if you don't want you subcats have a custom lookout.
.menu-categories-list ul li.subcat{
/*Your extra styles for nested categories here*/
}
F.e. if you want your subcat links to be red you should use
.menu-categories-list ul li.subcat{
color:#ff0000;
}