If this doesn’t solve your category/tag link list 404’s (pulldown and top level menus) when you have a custom permalink for Blog Posts, try this “action” function. It’s worked on every site I’ve tried (including multi-sites) WITHOUT having to tinker with .htaccess, change the existing permalink structure, or disable any installed plugins.
The problem is with 3.1’s canonical redirect. Sometimes, just disabling the redirect fixes the pblm. But, if this doesn’t solve it for you, here’s a more extensive alternative hotfix link:
https://wpcodesnippets.info/blog/how-to-fix-the-wp-3-1-custom-permalinks-bug.html
