Well, I don't know if this makes a difference or maybe it was how I set up vbgallery.
1: All of the categories listed, are sub-categories to the "Member's Galleries" which is set to a member's category, and all the sub-categories are not set to member's categories:
Member Galleries (set to member's category)
-Misc vehicle Photos
I moved all the groups to their own categories with no sub-categories, and the "Unregistered" category in the Member Galleries is now gone (without having to do the modification you listed).
2: When I was testing and setting up my categories, when I uploaded a picture using my own account into "Car Pictures", it also created a directory within "Member's Galleries" under my account name "JoeThaMan". I thought it was supposed to do that as a feature, until all other images that were uploaded by other members to any of the other categories went into an "Unregistered" category in the "Member's Galleries" category.
3: Only registered users are allowed to upload, unregistered/guests are not allowed to upload to any of the categories.
So, I'm not sure whether it's a feature but it was what I was attempting to do. It would be nice that if any images uploaded to any other category,were also added into the "Member's Galleries" or category that is set to a member's category or maybe a feature to set a category as a "master member's category"