Category Paging

Hi, I have an issue that seems like an old one but with no clear answer, I have paging working on a custom loop within a template but when the same loop is applied to a category page it fails. The url is showing as category/my-category/page/2, my current loop has $paged = (get_query_var('paged')) ? get_query_var('paged') : 1; and 'paged' => $paged,.
I have unset and set my custom permalink structure which is set to /%post_id%/%postname% and have deleted my .htaccess file. What am I missing?

To be clear my complete page is here
http://pastebin.com/W4Pjqydh

Thanks,