Hi chittasn,
Not sure this issue is caused by what, but it also happens to the SharePoint 2007.
Actually when you patch the sp3 for office 2003, the drop downs also disappear in Excel 2003. And the drop downs are not appear in the Excel 2007 all the time.
I would suggest you go to Excel forum and ask whether display the dropdown in Excel 2007 for that choice field, and how to display it.
And you can post a feedback about this issue to the SharePoint Product Team via the following link, whether the choice field can be displayed as the dropdown format in the Excel 2007.
http://connect.microsoft.com/site428
Thanks,
Daniel
Regards, Daniel