I developed a custom functoid and found the weird behavior that wouldn't allow me to link the output to another functoid. I found the reason here:
http://msdn.microsoft.com/en-us/library/microsoft.biztalk.basefunctoids.functoidcategory.aspx
It states:
FunctoidCategory also determines the functionality restrictions and behaviors possible with the custom functoid. For example, a custom functoid that uses the Logical FunctoidCategory cannot output a string value to the map's destination schema, but will instead determine whether the destination record is created based on the Boolean value as mentioned at: Logical Functoids.
So using FunctoidCategory.Unknown to display the functoid in the Advanced Functoid category in the VS toolbox modified its behavior to not allow its output to link to other functoids.