Thanks to user jerdiggity for posting the following reply over on drupal.stackexchange here. Works perfectly.
Hmm... I'd try something like this:
Change this part of your code:
foreach ($children as $term) {
$output .= '<li>';
$output .= l($term->name, 'taxonomy/term/' . $term->tid);
$output .= '</li>';
}
to something like this:
// Avoid unnecessary "Invalid foreach" errors showing up in the log:
if (!empty($children)) {
// If not empty, run the foreach loop:
foreach ($children as $term) {
// Then check to see if any nodes exist for that term id:
$number_of_nodes = taxonomy_term_count_nodes($term->tid);
// If there ARE nodes...
if ($number_of_nodes > 0) {
// ... then add them to the output:
$output .= '<li>';
$output .= l($term->name, 'taxonomy/term/' . $term->tid);
$output .= '</li>';
}
}
}
Hope that helps... :)