Kyle,

I'm a fellow smith cart customer, not a smith guy, just fyi.

I've had a bunch of experience with importing categories via an excell spreadsheet.

I would recommend importing each category separately, and they manually creating your category heirachry after you import. So:
Breed;Merchandise;Yorkshire Terrier;Fridge Magnet

Then go into the edit categories, and move them around to the appropriate heirachry after.

There are several bugs/qwerks with importing and exporting categories (centered around the "~" and subcategories) I have reported that have not been addressed. I'm hoping it's on their "to-do" list..

No problem Kyle -

Once you have your heirachry set up after you've imported, do a product export. It's basically a direct translation of how Smith would want you to import for the structure you have set up. This should give you some key clues as to how to "work around" the qwerks.