Thanks for taking a look at this for me.
You can see the current behavior at http://dev.citylightphilly.com/blog/ -- Here is my specific problem.
We are using a category structure like this:
Events  Meals and Mission  Service 
Our problem is that our users are categorizing events like this:
Events  Meals and Mission [x] Service 
This results in the sidebar widget not reflecting the total number of events in the post count. For instance - we have 8 posts in "Meals and Mission" and 2 that are simply in the "Events" category. We'd like the sidebar to reflect the total post count like this
Events (10) Meals and Mission (8)
However, the post count looks like this:
Events (2) Meals and Mission (8)
EDIT: moved the quick fix to an 'answer' below.
What I'd prefer to do is tweak the widget to reflect the total number of posts in that category, including all its child categories. Is this possible? I'm using the stock "categories" widget.