Yeah, unfortunately in "all" it really does mean "all." Since you execute this command from the main listing, and there isn't a similar command within individual forums (it's displayed at the top but really is a 'global' command like logging out), I don't think there is a way to just mark a certain category read.
I agree that this is a feature ubb should have -- but then, there are a lot of features we think ubb should have. If anyone has any experience to another style of forum that would be superior, send a note to both myself, Takdren_Admin and Taldren_Lan. We'd be interested in your input. But it would have to be pretty good stuff to warrant a whole change -- we've just done a lot of work to get ubb upgraded.