Displaying custom post type on category pages but not on blog listings

This may be overly simplistic, but have you tried changing is_home() to is_category(), in this line:

if ( is_home() && false == $query->query_vars['suppress_filters'] )

i.e. change it to this:

if ( is_category() && false == $query->query_vars['suppress_filters'] )

Worth a shot, anyway…