"Defined categories on the server and client"? That doesn't sound good. You should only define categories on the server, and when you define the sets make sure you select the server and its categories should be there. Since you see "reading from the server" I gather you made the server connection correctly but didn't select any categories from the server.
[attempting to correct my post later] I'm not in front of a computer with NOTD now, but I think I erred slightly above. It's when you define categories that you have to make sure you select the server first so you're defining categories on the server, not local categores. It doesn't matter what computer[s] you use to define the categories, it doesn't have to be the one that you installed the server on. Then you have to define sets on each computer, and the categories should already be listed.
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