This is a known issue in the current Drupal 5 version.

If you visit the admin settings page after installing, the module should create the taxonomy and related configuration, if it's not been created already.

What is the value of the ed_classified_vocabulary variable in the variable table?

As an alternative, you can create your own taxonomy and assign the taxonomy id number to a variable named ed_classified_vocabulary - this will force the classified ads module to use the selected taxonomy.

So, if the taxonomy (vocabulary) has an id of 3, execute this SQL statement:

INSERT INTO variable set name='ed_classified_vocabulary', value='i:3;';

or, if the variable exists use this:

UPDATE variable set value='i:3;' where name='ed_classified_vocabulary';