Migrating static site navigation

I have a big job planned which is to migrate http://xtort.net to WP. My two questions are:

1) Would this be the best way to go about it: install the WP directory, then point to a temp home page in the root directory, transfer the content into “pages”, put in the redirects, kill the index file, and then make the temp WP index file the main one?

2) I have a lot of categorized content. On this page for eg, there is a list of “categories” on the right, which shows subcats for “system utilities”:
http://www.xtort.net/system/backup.php
How could I create a drop-down list that only shows the subcategories for the corresponding section? (I have seen a few dropdown plugins that will add all of the pages and subpages to itself, but, in my case that would be a huge list to show on every single page. In other words, when I am on the “system utilities” page, I see only the subcats for that section, and when I am on the “multimedia” section, I see only the subcats for that section?)