Yes you can definitely list by category and even add categories to your navigation menu. You can list by tags as well. Working off this idea, if you want dig a little deeper within categories, there are several plugins on WordPress related to categories and customizing them.
Would you still like me to look in to testing out IssueM?
It doesn’t have to be IssueM specifically, but it would be awesome if there were a plugin/way to group posts together in Novella into discrete “issues” like a magazine where each month they are archived and you can scroll through all previous issues. Clicking on an issue would take you to a page with all of the posts in that issue.