Category "restrictions" ONLY restrict which product-types you can use to CREATE NEW products within said category. If a category is restricted to a certain product-type, then ONLY that product type will appear in the pulldown menu next to the "New Product" button.
Categories can contain products of any product type. But the restrictions affect creation of NEW products. Essentially, the restriction feature is simply a "control" to help prevent errors during data-entry using the admin interface.
What about display?
Whatever product type you use to create a product ... is what will be used to display that product to the customers in your store. The display in the store has nothing to do with the restrictions in the admin related to a given category. It's based on the product-type of the product, not the category.
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