There's a big difference between teaching category theory and merely paying attention to the things that category theory clarifies (like the difference between direct products and direct sums). In my opinion, the latter should be done early (and late, and at all other times); there's no reason for intentional sloppiness. On the other hand, teaching category theory is better done after the students have been exposed to some of the relevant examples.
Many years ago, I taught a course on category theory, and in my opinion it was a failure. Many of the students had not previously seen the examples I wanted to use. One of the beauties of category theory is that it unifies many different-looking concepts; for example, left adjoints of forgetful functors include free groups, universal enveloping algebras, Stone-Cech compactifications, abelianizations of groups, and many more. But the beauty is hard to convey when, in addition to explaining the notion of adjoint, one must also explain each (or at least several) of these special cases. So I think category theory should be taught at the stage where students have already seen enough special cases of its concepts to appreciate their unification. Without the examples, category theory can look terribly unmotivated and unintuitive.
