Category Navigation instead of Pages

<div id="navbg">
<div id="nav">
<ul>
<li class="<?php if (((is_home()) && !(is_paged())) or (is_archive()) or (is_single()) or (is_paged()) or (is_search())) { ?>current_page_item<?php } else { ?>page_item<?php } ?>"><a href="<?php echo get_settings('home'); ?>">Home<?php echo $langblog;?></a></li>
<?php wp_list_pages('sort_column=menu_order&depth=1&title_li='); ?>
<li class="rss"><a href="<?php bloginfo('rss2_url'); ?>">RSS</a></li>
</ul>
</div>

I have tried various ways so that this displays and highlights the selected category that is being displayed, but it will display the categories so they are selectable but not highlight them in the menu.

If someone could change that code for me would be much appreciated.