well i suppose with Album you mean user categories..
I tested as admin..
and it works..
create a category in menu => my stuff => Category Admin
then call category Admin again and create new category called test sub
select as parent category "test"
upload an image to test..
and you have:
Home => Gallery => Main Category => Member's Categories => Luciano's Images => test => test sub => Uploaded image
If user has permission to create user categories, he should also be able to create sub categories