Hi there mfcrisp and clumsycare. Thanks for the notes here. As clumsycare alluded to, we abandoned treating events as regular posts after 1.6.5, when it made more sense from a development standpoint and based on community feedback, to move towards having events as a custom post type. This means having them live on their own page, at /events, rather than exist among your regular blog posts.
Some users wanted to continue with their events as posts, though, and to accomodate them we put together a tutorial on it. That can be found right here: http://tri.be/show-your-events-in-the-main-post-loop/. We've also built a setting into the 3.0 release, which we're close to completing now and should be out over the coming weeks, where you can elect to have your events post in both locations via a checkbox on the backend.
Clumsycare, regarding your point on having a nav link to the calendar page: this is still totally doable; you will just need to change the URL under Appearance -> Menus. Instead of linking to a category called events, change the link to go to (siteurl.com)/events and it will show the calendar as expected.
That help get things sorted? If you want 1.6.5, you can re-download it here: http://wordpress.org/extend/plugins/the-events-calendar/developers/. But keep in mind that we strongly advise not running it, since it's totally unstable on any modern version of WordPress and we cannot support it accordingly. Hopefully the solutions I proposed above will keep you from needing to downgrade.