You can override the sub-template in menu items ONLY if you link to multiple categories. For single categories, you can't change it as this can be done in the actual K2 category settings.

A menu item for "K2 Categories" can link to one or more categories. When you select a single category in the 2nd tab of the menu item form, you'll notice that most options that follow are greyed out. This is normal. The point is that when you select a single category, you want this category's display option to take effect.

However, if you need to create a menu item pointing to multiple K2 categories, e.g. an "All News" menu item retrieving K2 content from multiple categories, when you select these multiple categories, the options that follow are enabled. This is to allow you to override different category settings in regards to the grid of items displayed. E.g. one category may show just 4 "primary" items in 1 column. Another one 8 "leading" items in 2 columns. And so on. When the additonal grid options are enabled in the menu item, you can create a new grid and basically "normalize" potentially different grid settings per category.

You need to check your overrides thoroughly. You're missing some if/else check.