I do not see anywhere in our code that we set a parent categories thumbnail. The only way we set a catavatar on a category is IF
you upload to a category that has no category thumbnail set and we only set that specific category your uploading to.
This is the code in image-inc.php
Content visible to verified customers only.
You can clearly see we only setup the query to set the thumbnail on only that specific category and only if the thumbnail column is 0 which means empty in image-inc.php
I have already tested this out also. I for instance am using 7.01 and have had the same category avatars set for my categories forever.
So thus this begs the question what version of the software are you using? I take it that its older. I would suggest you upgrade as am am speaking of our current software.