The new version interfaces with the DNN Core Taxonomy.  You will find your categories located Taxonomy.  You may reach it via Admin->Taxonomy->Blog Topics  Make sure you have "Category Vocabulary Root:" set to the same "Blog Topics" in the Forum Control Panel.  You will probably have to clear the cash via Tools->Clear Cache AND do a Ctrl+F5 to refresh the page before the categories will appear in an add blog window.  Hope this helps:-)

I should loan you one of mine, it was created twice during the install process.  I'm not smart enough to know if you can generate it again programatically.  You could create it manually.  It is: "Name: Blog Topics" "Type: Simple", "Scope:  Portal", "Description:  Automatically generated for blog module."  Then you would have to choose it from the Blog Control Panel.

You would have to manually enter your categories though.

I did notice that even though the installation created the Blog Topics, however, none of the pointers from the previouse version were carried over into the update.  Don't know if this is a bug, or a planned omission.  It's kind of a pain to have to go back and re-catorize the posts.