WordPress MU

I'm new to WPMU. I just installed it. I selected subdomain option(during installation). So now that works fine. When i create a new blog(test), i get test. domain.com working fine.
But the categories.domain.com doesn't work. I'm badly in need of this feature. I want both these to work: name.domain.com(works now) and category.domain.com.

How can i enable it. Any help is appreciated.

Did you set it up in Apache? MU doesn't do that part for you - either you or your host has to change settings on the server.

Agree with Andrea. Did you set up the Wildcard in DNS?