Blog breadcrumb optino grayed out

The blog breadcrumb options are only available when you have a static front page and a page setup for posts (under Settings > General in the WordPress admin area).

I am trying to set this up so I have breadcrumb navigation on my blog posts, navigating me back to the subcategory on the post.

Can you elaborate/clarify what you want to do? Are you trying to have a category and its parent category show up in the breadcrumb trail for a post? If so, make sure that relationship is established (that the child category is a child of the parent category), and make sure the post is only an explicit member of the child category.