Thanks to Ramani of Hackosphere, I now have a drop-down menu for the labels or categories. Check further down the sidebar to see the drop-down menu. To see all the labels.
If you want to have a drop-down menu of your own, surf over to Drop-down labels - First Blogger beta hack
Update: Drop-down menu hack was done successful, as seen on the web, but in the Template layout, when I tried to move the label element, got this error message: "An error occured. Please try again. This mean you will not be able to change the position of the drop-down menu using the template layout, but will have to use EDIT HTML to move it. In fact, with the hack, trying to move any other page element will result in the same error message.
Update: Changed over to Ramani's 3 column template. See 3-column Template for Blogger Beta. With that change of template, the drop-down menu for the labels is now no longer in this blog. Since it was just for testing purposes, I have decided not to replace it. BTW, it seems with the drop-down menu for label hack, dragging and dropping page element is no problem at all. See Chuck's comment in this post.