umm thats a little complicated... try this 3 line solution:
bottom of File: /customer/main/subcategories.tpl
Code:
{if $products eq ""}
{if $f_products ne ""}
{/if}
{/if}
{ include file="customer/main/navigation.tpl" }
to
Code:
{if empty($products)}
{if $f_products ne ""}
{include file="customer/main/featured.tpl"}
{/if}
{/if}
{ include file="customer/main/navigation.tpl" }
apparently an empty array does not evaluate to "".
this works fine now, and displays featured products if there are no products in the current category and there are featured products., If you alwasy want featured products to show then remove the conditional if's