I guess you haven’t noticed but once you drag and drop your categories widget into your sidebar, enter categories in the admin area of your blog, and write at least one post and assign a category to it VOILA! categories are displayed in your sidebar in alphabetical order. That’s the way they are coded to display – alphabetically. It’s also the way your links will be displayed. :)
Edit: Ahhh … I see from your blog that this is no longer an issue.