I can see
# NEW MENU 1 (Page Menu) and
# NEW MENU 2 (Category Menu) options in Atahualpa 3.5.3 theme

But i can see only pages above header image but not categories below it
I have also created Menu 2 after checking
"Recommended: Since you're using WP 3+: Use the new WP menu system, see Appearance → Menus on the left. Create a menu there and add it to Menu Location → Menu 2. Once you've done that this setting here and the next few settings become obsolete. (The Javascript animation and the style settings at the bottom of this page still work)" in NEW MENU 2 (Category Menu)

Whats wrong ?
My blog

did you go to dashboard->appearances->menu->theme locations and name your new menu?
The default menu1 in Atahualpa displays PAGES ONLY unless you override it by building your own menu and putting it in the above location

Cool
finally i figured it out and now both pages and categories are visible but do check out my BLOG404
i have set both pages and categories to same 13 pixels and width of sub menus to same 16
But yet the menu bar for page is bigger than categories
looks like this is default option there , how do i fix this ?

i don't see any sub menus

Ooops sorry for that
i meant menus !
in 1st menu [ for pages ]
and 2nd one [ for categories ]
I have implemented same width , same font for both of em , so that they ought to look exact
But the pages menu on top of my blog header image looks gr8 in height and size than category menu !
I want both of them to look same
like i wanna edit height and all that but cant find that option ...

Please export your settings and attach them to a reply (use the paper clip icon) so I can take a look

okie
here is txt files i exported
ata-blog404com-20101014.txt

Thanks

you had made changes in the CSS inserts, but the selectors were for 'menu1' which is the pages menu. The 'categories' menu is 'menu2' so you need selectors for them also. Copy your CSS inserts to a text file (for safe keeping) and try this instead

h1, h2 {
	font-size:2.2em;
	line-height:1.364em;
	font-weight: normal;
}


div.widget ul li a:link,
div.widget ul li a:visited,
div.widget ul li a:active,
div.widget ul li a:hover {
	color: #005B9A;
	border-left: 0 !important;
	padding-left: 0 !important;
}

div.widget ul {
	list-style-type: none;
	color: #005B9A;
	border-left: 0 !important;
	padding-left: 0 !important;
}

div.widget ul li {
	display: list-item;
}

div.widget ul li a:hover {
	text-decoration: underline;
}

div.widget ul, div.textwidget {
	line-height: 1.2em;
}

#sidebar_widget_area_1 {
padding: 10px;
border-right:1px solid #ddd;
}

#sidebar_widget_area_2 {
padding: 10px;
border-left:1px solid #cccccc;
}




#advanced_text-5 {
padding: 10px;
background: #ffffff;
}

/*Page menu bar*/

div#menu2 ul.rMenu,
div#menu1 ul.rMenu {
	margin: 15px 0;
	border-width: 0 0 1px 0;
	letter-spacing: 2px;
	background-color: #ffffff;
}

div#menu2 ul.rMenu li a,
div#menu1 ul.rMenu li a {
	border-width: 1px;
	padding: 8px;
}

/* active item = current page */
div#menu2 ul.rMenu li.current_page_item a, 
div#menu2 ul.rMenu li.current_page_item a:active, 
div#menu2 ul.rMenu li.current_page_item a:visited,
div#menu1 ul.rMenu li.current_page_item a,
div#menu1 ul.rMenu li.current_page_item a:active, 
div#menu1 ul.rMenu li.current_page_item a:visited {
	background-color: #ffffff;
	border-bottom-width: 1;  
	border-bottom-color:white;
}

/*Subscribe button -- replace "page-item-27" with whatever css class your site is generating */
div#menu1 ul.rMenu li.page-item-27 {
	background:transparent url(http://warrior-coach.com/thesis/images/icon-rss.gif) no-repeat scroll 100% 50%;
	background-color: white;
	float: right;
	padding-right:16px;
	border:0;
}

div#menu1 ul.rMenu li.page-item-27 a {
	border:0;
}


div.rss-box {
position: relative; 
margin-top: -35px;
}