Categories or Tags or both?

HubPages.com, the startup where I work, has recently added three-level categories in addition to tags. This goes against the much of the current thinking in web design right now (for example gmail).

We found in our experience that tags are not enough. We believe that adding categories in addition to tags will increase search engine traffic and make it easier to navigate between "hubs" (our term for articles published on HubPages).

What do you think? Do categories have a place in web sites or are tags enough? So far, the response to HubPages has been mostly positive (see blog.hubpages.com).