This is a new install? This is normally the type of thing a consultant would handle before handing off your Service Desk environment.
Things that can sometimes make this not operate properly on a fresh oorb database are removing the company and customer groups from the window. Are they still on the window? Also be sure to post your response agreement rules if possible.
Personally I'd send the DB to your support team and ask them to help you as this sort of thing should be covered by S&M and you have checked out the obvious issues that might arise. One check would be that you are using the same window for both WebDesk and Console and that the version of LDSD you are using is reasonably up to date
both customer groups and company are on the window. the other thing is leaving the category automatically fills in the set response level when business function and impact are selected . selecting category clears those entries and no pre defined response level will show on the drop down irrespective of which BF or Impact is selected
we are using same window for both webdesk and console
Check to see if you have any filter on the Response Level attribute on the Incident Object. If you do, try removing this, save Object Designer and then test again.
If the Response Level is populating, but blanking out as soon as you fill in the Category, then it could be again be a filter that is causing this but it could also be a Copy Rule. Check what copy rules you have on the window and see if any one them are controlling a variation attribute on the window.