I agree having categories is important. If I'm just browsing I may browse by category but when looking for a particular item I search via keywords "All Categories".
I usually look for cymbals, a few months back looking at the Percussion/Cymbal category there were 4 listings however, when I typed in cymbals "All Categories" there were over 20 listings for cymbals. The seller had their cymbals listed in Percussion/Accessories category.
Just one example I have observed.
I'm not familiar with the issue with the "horrendously long drop down menu for category selection". Is this soemthing which can be cleaned up without removing categories or will removal be an only option?