In the latest release: 20090806, The sub-category titles are not linkable, only the image is a link. If the image is turned off the category title does not link to the category. It used to in the previous version of k2.
A previous poster posted a solution. You can view it here:
k2community.joomlaworks.gr/forum/topics/category-listing?id=3536014%3ATopic%3A1413&page=2#comments

Open the text file that is attached there.
This solution works!