have you ever changed this in the version 4 xcart? the code is set up a bit different. I was able to use this code in the last store I used but the new version subcategories.ypl has this code instead:
{section name=cat_num loop=$subcategories}
{if $subcategories[cat_num].category}{assign var="tmp" value="1"}{/if}
{/section}
{if $subcategories}
<TABLE border="0" cellspacing="5">
{foreach from=$subcategories item=subcat}
<TR>
<TD align="center" nowrap width="95%">
[img]{$xcart_web_dir}/icon.php?categoryid={$subcat.categoryid}[/img]
<FONT class="ItemsList">{ $subcat.category|escape }</FONT>
</TD>
<TD align="right" nowrap><FONT class="Text">{if $config.Appearance.count_products eq "Y"}
{if $subcat.product_count}{ $subcat.product_count } {$lng.lbl_products}
{elseif $subcat.subcategory_count}{ $subcat.subcategory_count } {$lng.lbl_categories|lower}
{/if}
{/if}</FONT></TD>
</TR>
{/foreach}
</TABLE>
{/if}