I use the
Folding categories Widget
Then add this on the next line after the start of your loop.
Code:
<? if ((is_category()) && in_category($wp_query->get_queried_object_id())) { ?>
Then this on the line before you close the loop
You can see it in action at
one of my sites in the side bar "Product Menu.
And yes, It's a ghost town. I stopped updating it to work on other things.
I'll get back to it someday
Actually I'm thinking of going in a different direction with it anyway.
Edit: Okay I think I miss understood what you were asking but it may still be helpful so I'll leave it.
Edit again: The code blocks will keep posts, posted in child categories from showing up in the parent categories so I think that's what you were asking.