Someone in the thread on friendliness mentioned that categories are always in one language (usually english). Well still a long way from fixing the issue, perhaps if we allowed unrestricted {{DISPLAYTITLE:...}}, combined with the {{int: hack, that'd allow better translatable categories. (of course you'd only be able to use the actual category name in [[category:Foo]] links. I suppose one could use a bot to automatically change links to redirect categories to their canonical name, but then we're getting really really hacky).
Anyways, just a thought.
cheers, bawolff