I just realized that uploading the requested php page from within the framework folder solved the problem. Must be that security blocking issue you mentioned before. It works now. For others facing the same issue let me explain. I was following the above tutorial on dynamic dropdowns, all was great at localhost. Once on remote site the ajax was not working. I was calling the php page named plugin-subcategories.php from its normal location on the site, which was working on localhost. But that seems not to be the case when online, so what I did was to duplicate that page (with updated links) from the current folder into the webassist/framework folder. That did the trick. Seems the included file needs to be called from that folder for some reason. Don't forget to update the links when making a copy inside the framework folder.
Keep up the great work Webassist!