Ok, open up skin1/customer/main/subcategories.tpl and replace this:
Code:
{if $subcategories}
{if $tmp} [img]{if $current_category.icon_url}{$current_category.icon_url}{else}{$xcart_web_dir}/icon.php?categoryid={$cat}{/if}[/img] {/if}
with this:
Code:
[img]{if $current_category.icon_url}{$current_category.icon_url}{else}{$xcart_web_dir}/icon.php?categoryid={$cat}{/if}[/img]
{if $subcategories}
Be sure and make a backup of your current template first. Haven't tested this, but it should work.