Source Page

In wp-includes/widgets.php

1. Fine line :   $d = $options[$number]['dropdown'] ? ‘1′ : ‘0′;

2 Add under this line: $exclude = ‘17′; (17 replaced with categories you want hidden add commas for more categories ‘17,32,55′)

3. Find line:  $cat_args = array(‘orderby’ => ‘name’, ’show_count’ => $c, ‘hierarchical’ => $h);

4. Replace that line with:  $cat_args = array(‘orderby’ => ‘name’, ’show_count’ => $c, ‘hierarchical’ => $h, ‘exclude’ => $exclude);