I have written a program for unlimited categories depth, which is in use for few ecommerce websites. Like many others, I used one SQL table to store the category relation (or the tree structure). E.g. child_id & parent_id.
To cope with the "unlimited" nature, the htaccess file & html ul list are generated on the fly. To sum it up, it has SEO friendly URLs, breadcrumbs, CSS driven navigation bar, category ordering in the backend, etc. But I doubt that it can truly be 'unlimited'.
For instant, try to output a HTML un-ordered list with 100 depths, Firefox & IE both crash when rendering the page. If one anchor link is 150px wide, for a 1280x768 screen resolution, the browser can only display 9 levels of categories. The horizontal scroll bar won't work when the navigation bar is dynamic.
Unlimited categories depth maybe useful for software system which deals with BOM (bill of materials) but those systems are unlikely to be used in web browser. If someone knows a website which has more than 10 categories level, please let me know. Thanks