I was fortunate to find this jquery based plug-in which accomplished what I was really after. It lets you expand/collapse the subcategories with any of three standard jquery effects. It will automatically hide subcategories without any posts. Also, you can use images instead of the default bullets by modifying the underlying css.

[jQuery Categories List showcount=1 orderby=count order=desc  ex_sym=+ con_sym=- fx_in=fadeIn exclude=22,32]

Also, read through these FIVE must have wordpress shortcodes – these are implemented via functions.php in your template files (accessed through the Appearance—> Editor).

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