Looked everywhere? Did you test any of these?
http://wordpress.org/extend/plugins/search.php?q=category+sidebar+recent+posts&sort=
Experiment with this one first – mainly because people have said it works with 2.9
Advanced Most Recent Posts
I think “Excerpt Length” might control how much of the post is displayed under each title, you may have to do a little work to find one with a drop-down and recent posts, but maybe starting with something else will let you modify things to your liking.
Take a peek at this one. It looks closer to what you might be looking for. It says compatible up to 2.8, but I just tried it on 3.0 beta1 using the instructions found on the page by adding the code to my sidebar.php and specifying a single category to display, and it worked perfectly. The only drawback is that it displays just category post titles, not the content or an excerpt. I could see where displaying the article content or excerpts might get messy fast in a sidebar.
Drop-Down Post List Plugin for WordPress
