That is more or less the expected display there. We don't differentiate (well, at all) between a level 1 and level 2 forum and we do some groupings (with CSS) to help the common case, which you're not really following.
How would you want it to display? You likely could make template changes to achieve it.
Well I really can't tell just from the pictures, but when I was using my test forum out, I was seeing the difference between "Siblings" and "Child" (it still doesn't make much sense to me really). If you placed it as a Sibling of a forum, it shows up on the main category instead of Subforums (it hasn't done that since I've upgrade to RC2 though).
What I was saying was make sure that your Parent was PC software for like Linux Distros and that your subforums (Debain, Fedora, Mint, Fedora, Ubuntu, etc) all have Linux Distros as their Parent.
If you want, I can try to help you solve it on your site lol
Nvm the previous statement of mine, I didnt see that you were using PC Software as a Category until I tried to completely reproduce your setup on my test site, and then re-reading what Mike said, its because you were using Categories inside of a Category. Any Subforum in the second category, past the first, will be displayed as it it was a first level subforum instead of a second or third. You'll need to demote the PC Software from a Category to a Forum and then it will display as you want it to. Easiest way would be to create a new one forum called PC Software, Display it as 1, and then migrate all the others over to it. Alternatively, you could try messing in the database, just I don't know how it would come out if you demoted it that way.
Have you tried removing the CSS I pointed to? (If you're not happy with how, for example, Mac OS X and Hackintosh are displayed.) However, if you remove that and look at PC Hardware, you'll probably see why it was there in the first place.
Really, I suppose you just need to replace some of your forums that have children with categories, assuming they don't have posts within them. (If they do, then you could create a category and move the old forum to a child called "Other" or similar.)