Hi all. Encountered this problem tonight and was able to work through it as follows:
The first item that complained was LABOUR, which had about 20 sub-items. I created a new item called TEST and proceeded to move all 20 sub-items over by reassigning them from LABOUR to TEST. Once this was done, the merge continued.
After that, I hit a couple snags with smaller item lists. For those, I decided to try something different and just appended the item name to the front of the sub-item (e.g. the sub-item "Consumables" under "PARTS" got renamed to "PARTS - Consumables"), and then I unchecked the sub-item box - so essentially I moved all these items up a level in the tree, using a prefix to help me reclaim them later. I repeated this 2 or 3 times and eventually got the message "Excellent! You successfully switched from sub-items to Categories."
After the merge completed, I went to rename the category "TEST" to "LABOUR" and was told I couldn't because LABOUR already existed (it still did, as an item). So I found the LABOUR item, changed it's name to "LABOUR- OLD" set it to inactive then was able rename TEST to LABOUR without issue.
FWIW, QBO seems to work through the Products and Services list alphabetically. For some reason, even though I had items from B-K in my list, I didn't hit any problems until L (i.e. LABOUR). After that, it hit a problem with M, P and S (essentially any letter in my list that had an item with sub-items), so as I progressed, I was able to scan ahead and see how much work lay ahead. Again, after the merge, I went back - renamed the problem items to "M/P/S - OLD" and made them inactive.
Hope this helps! TBH, I'm pretty new to QBO, so I don't pretend to know why some items were problematic and others weren't, but getting results was more important than knowing why. Looking at a recent estimate (which has items from several of the affected categories), everything appears to be unaffected, so it seems my hackery didn't break anything :)
