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As far as I can see, there are several options:
Top of page navigation
This could take the form of tabs (amazon.co.uk) or drop down menus. The drawback to using the top of the page is that the amount of space available is limited by the width of the page. It is possible to add sub-tabs and sub-sub-sub-sub-tabs, but eventually it becomes unwieldly and messy. Realistically, I would suggest that one top level and one sub-level of tabs is the maximum. The designers at amazon would appear to agree.
According to this study [poynterextra.org ], people are almost 20% more likely to see the navigation if it's placed at the top, as opposed to on the left hand side. However, as the report correctly says, that doesn't mean that top navigation should be used, just that there's no reason to avoid it.
Side of page navigation
The benefits of placing the navigation on the side of the page is that there is a lot more space for links. Sub-categories can be indented slightly and also listed on the side. I would suggest that most websites use this navigation structure, which means that most users would be conditioned to looking on the left hand side for navigation. Personally, I think that when it comes to navigation, being 'out there' and totally different is not a good thing!
A combination of the two
I would envisage this consisting of tabs for the main sections at the top and then left hand side navigation for the sub-sections. This has the advantage of utilising navigational space at the top, without being constrained by the page width for list sub-sections.
Another option that I haven't addressed here is the possibility of using CSS to create dynamic drop down menus for either the side or top navigation. Assuming you're willing to go through the trouble of making sure they work on 99% of browsers, would they be worth the effort?
Are there any other issues relating to navigation that I've missed out?