That list is comprised of two main parts. The first section are folders used in other rules. The second is comprised of folders in your Finder sidebar. Trimming either of those will get rid of entries though if you need all those folders there then there's little you can do at this point, unfortunately.
If the first section is very large, there's a chance your rules might be able to be reworked by having Hazel file into folders dynamically which would cut down the number of explicit folders in the list.