I've got Atahualpa running on several test directories, and I just love it, for all the reasons everybody else has been gushing about.
However, I'm having an issue with the category widget. If you click on http://www.larchmontgazette.com/wp3/ and click on the News category in the left sidebar, you get nothing. There is one post I assigned to the News category, as you see in the center column.
I just did this fresh install of WP2.7 and Atahualpa (where does that name come from?), and I have everything also installed at http://larchmontgazette.com/wp27/, with more content at the second. My ISP has MySQL, PHP5, everything else seems to work.