FYI - I just solved the problem. Add an email field to the contacts view "by
category"; sort by the email field, which collects all the contacts with
emails into a contiguous list. Shift-click to quickly select all contacts
with emails -then create email. Only contacts with email addresses will be
included.

First - I  am using OL 2002 sp3 and can only speak to that program.
It seems you want to send an email to an entire category, yes? If so, a
distribution list is not the way to go.
View your contacts in the "by category" view. Click on the category header,
then select ACTION>NEW MESSAGE TO CONTACT - the result will be a new, blank
email message with all contacts from that category inlcuded in the TO field.
1. If every contact does not have a valid email address, you will get a
message telling you that OL will insert their name as a place holder and you
will have to go into the list of addresses in the email and edit out the
names or replace with a valid email address - not very good.
2. However, if you add an email field to the contacts view "by category";
sort by the email field, [click on the field header] which collects all the
contacts with emails into a contiguous list. Shift-click to quickly select
all contacts with emails - then create email as above, only contacts with
email addresses [those that you just selected] will be included in the TO
field, so no editing necessary.
3. If you want to maintain some privacy of who is receiving the message,
cut/paste the addresses from TO into the BCC field and send the message to
yourself [TO] - then no one else will see the full address list.