Right now, you can not mix the category drop down and the category permalinks. I have been working on resolving this as you see that category drop down does properly detect a category permalink. But there is still more to do.
I suggest removing the category drop down filter.
As for the simple search… It appears you may have the directory page set as the WordPress front page. Is that right? Currently there’s bug in WP that redirects to the posts page when it detects a query on the front page. I do have code in place that attempts to address this but because this is at the very core of WordPress it does not work in all instances. You’ll need to choose a different page for your front page so it is not the directory home page. I hope that makes sense.