Can you change color of category strips in Style Manager
 

Can you change the color of the category strips the style manager: (#869BBF url(images/gradients/gradient_tcat.gif) repeat-x top left) - When I change "#869BBF " no color change seems to appear.

What function does #869BBF have in the expression?

or do you have to do it in photoshop?

The hex value will only show/display if you haven't got an image present (which you have). You'll need to go into photoshop and create a gradient and colour it from there ensure you name it gradient_tcat.gif. :)

The color is also there to cover the area that the background image does not. If the background image is 200x300 and your area is 500x500, the rest of the area will be covered by that color.