You have to learn using webmaster and FF/Firebug to find your way around xcart and css. In skin1/altskin on line 604
Code:
.menu-categories-list ul li, .menu-fancy-categories-list ul li {
border-bottom:1px solid #FFFFFF;
padding-bottom:12px;
padding-top:12px;
}
Modify padding-bottom and padding-top to whatever numbers fits you. 7 may work for you