You can not present the desired structure using object-relational binding mode. The issue is that the Reports object from the second level does not contain SubCats in its properties. You can present the structure with SubCats at the second level following your description of objects:
.DisplayMember = "Name\Name\Name"
.ChildMember = "categories\SubCats\Reports"
The solution in your case is to loop through the lists and programmatically build the nodes.
I hoe this helps. Let me know if you need further assistance.
the Telerik team