Too many Categories, wish to have 2 can you advise please?

first, by search engine, i’m assuming you mean yahoo, google, etc. in the short term, the old links to the actual posts, assuming you used something like date based permalinks will not work unless you can write some htaccess rules which redirect/rewrite the request to the new locations. personally, I’d probably leave the old categories in place, so that the old permalinks still work, but then just customize the sidebar.php code to show only the new categories (or existing ones) you’ll continue to use. The only other issue would be the turning off of any code with each post like “posted in: cat1, cat2, cat3”.