That example is roughly exactly what I wish to do. Currently, I have removed all height attributes and let the box stay "collapsed" if you will. Since I will have to continue to dev for IE6, I will have to investigate those other methods maybe.
My ultimate end result would be to incorporate what you have in your [2] example, but then have a maximum bound as well that will start to scroll(maybe? I don't like the look of any of it though).
As for what its doing, I have an order form with many fields. Off to the left is this search thing. the results of that search are set in individual <div>s and when clicked, fills the fields with the correct results.
The problem came about with that there could be a LARGE number of results, and I think it bad practice to let it just keep going downward, forcing the user to scroll the WHOLE page (and losing track of the fields that need to be filled in) to possibly find their result. I might just put a size for the box back in and tell it to overflow:auto
I will attempt to break this apart into an example webpage to be shown.