I would need all info vb
login ftp login as well as link and login to view the database.
Clearly the issue here is we need to find out why your specific site look like that.
Here is yet another test A Category - PhotoPost Photo Gallery
Here are two specific tests I have done with the info you have provided which is assigned albums as subalbums to a category and I do not get an empty album template above.
So this is site specific.