I would like to disable subalbums within my albums, so that users cannot create subalbums when uploading photos.

I want my users to upload their photos to the main album, rather than being able to create their own subalbum. Is this possible?

You will need Zenphoto 1.4.1 for this feature. You can get the beta version by downloading the nightly development build. Disable "edit" rights in the user's managed albums list for any album you want to prevent him making subalbums.

I don't know if this is a silly question or not...but...If I download the nightly build, will I lose my custom theme I have created?

I read that when downloading the nightly build you should replace all of your files unless told otherwise.

Any advice about downloading the nightly build would be appreciated.

If you given it its own name (rather than changing one of the existing ones) there will be no problem. But a backup is always a good idea. You only replace files that were part of the release in the first place.