Thanks Mary - that does help to confirm it's a bug rather than a permission setting somewhere. Gary in the previous post was able to get around it but I have spent a fair amount of time experimenting with permissions and can't get the same result (Thank you Gary for the reply).
I think we will wait for the bug fix athough our category pages are really department sub sites so adding blocks to provde department level information such as recent news, alerts etc is something we have a strong need for.