Howdy torontokundaliniyoga,
That is a good idea. This can be accomplished via a theme override. You could overrid /community/modules/taxonomy.php. Instead of calling formCategoryDropdown() you could write your own function that outputs categories as a select, perhaps doing subcats inside of optgroups? At that point it is up to you!
Obviously that will require some knowhow. This could be a popular feature request though. If you would like to recommend it as a feature so the community can vote on it, that would increase the likelihood that we could build this out as a feature integrated into Community in the future.
Does that all make sense? Can I answer any further questions? Cheers!
– Brook