Your not doing the dochildren AFTER you create that subcat. If you created your subcat and then did the dochildren on the parent cat it works fine as I explained.
Your video showed that your doing this action backwards. As explained you can redownload 4.04 if you dont want to update to the beta and upload the two files noted in my post. I made a change to try and load the parent permissions when you create a new category. ThE WALK_TREE_VARS function did not grab post permissions which is totally separate from the dochildren function.
Your issue is your doing dochildren before you even create a subcats so all thats going to do is update its current children. Your test cat does not exist yet. Make sense now. Thats why dochildren would not work. It works fine for how its coded to update existing children to the parents permissions. it can not update a category that does not exist.