<?php $_helper = Mage::helper('catalog/category') ?>
<?php $_categories = $_helper->getStoreCategories() ?>
<?php if (count($_categories) > 0): ?>
<?php foreach($_categories as $_category): ?>
<a href="<?php echo $_helper->getCategoryUrl($_category) ?>">
<?php echo $_category->getName() ?>
</a>
<?php $_category = Mage::getModel('catalog/category')->load(11) ?>
<?php $_subcategories = $_category->getChildrenCategories() ?>
<?php if (count($_subcategories) > 0): ?>
<ul>
<?php foreach($_subcategories as $_subcategory): ?>
<li>
<a href="<?php echo $_helper->getCategoryUrl($_subcategory) ?>">
<?php echo $_subcategory->getName() ?>
<?php echo '<img src="' . Mage::getBaseUrl('media').'catalog/category/'. Mage::getModel('catalog/category')->load($_subcategory->getId())->getThumbnail() . '" />'; ?>
</a>
</li>
<?php endforeach; ?>
</ul>
<?php endif; ?>
<?php endforeach; ?>
<?php endif; ?>
The above code list the subcategories that is inside category id 11. For to get the thumbnail of category we need to upload image while creating the categories