You can definitely have three levels of the menu in place. How do your level three items relate to the level two items? If your products relate to the sub category through an id field this should tie all of them together.
When you are adding the third level you need to specify the id column and choose to filter on the parent id and choose nested, so long as the filtered column you have selected matches the id of the previous level menu this should get you displaying the items.
We have a guide on this that can be found in the CSS Menu Writer support page:
mw2_creating_dynamic_menus_ht.pdf
