[ubergeek]

Maybe try something like this?

In subcategories.tpl find the block of code starts at or near 16 and end at 33

{if $subcategories}
<table cellspacing="5" width="100%">
{foreach from=$subcategories item=subcat}
<tr>
{if $tmp and $first_subcat ne "Y"}
	<td valign="top" rowspan="{count value=$subcategories print="Y"}"><img src="{if $current_category.icon_url}{$current_category.icon_url}{else}{$xcart_web_dir}/image.php?id={$cat}&amp;type=C{/if}" alt="" /></td>
{assign var="first_subcat" value="Y"}
{/if}
	<td class="SubcatTitle"><a href="home.php?cat={ $subcat.categoryid }"><font class="ItemsList">{ $subcat.category|escape }</font></a><br /></td>
	<td class="SubcatInfo">{if $config.Appearance.count_products eq "Y"}
{if $subcat.product_count}{ $subcat.product_count } {$lng.lbl_products}
{elseif $subcat.subcategory_count}{ $subcat.subcategory_count } {$lng.lbl_categories|lower}
{/if}
	{/if}</td>
</tr>
{/foreach}
</table>
{/if}

Replace this if statement with the following:

{if $subcategories}
<FORM>
<SELECT ONCHANGE="location = this.options[this.selectedIndex].value;">
<OPTION>Select Category...</OPTION>
{foreach from=$subcategories item=subcat}
<OPTION VALUE="home.php?cat={ $subcat.categoryid }">{ $subcat.category|escape } {if $config.Appearance.count_products eq "Y"}
{if $subcat.product_count}
({ $subcat.product_count } {$lng.lbl_products})
{elseif $subcat.subcategory_count}
({ $subcat.subcategory_count } {$lng.lbl_categories|lower})
{/if}{/if}</OPTION>
{/foreach}
</SELECT>
</FORM>
{/if}

Probably could be cleaned up some but it should get you close.