Delete the block of code marked categories in yourskinname/_main.php.

	<div class="bSideItem">
		<h3><?php echo T_('Categories') ?></h3>
		<?php form_formstart( $Blog->dget( 'blogurl', 'raw' ) ) ?>
		<?php // -------------------------- CATEGORIES INCLUDED HERE -----------------------------
			require( dirname(__FILE__).'/_categories.php' );
			// -------------------------------- END OF CATEGORIES ---------------------------------- ?>
		<br />
		<input type="submit" class="submit" value="<?php echo T_('Get selection') ?>" />
		</form>
	</div>

Or similar, depending on which skin you're using.