It sounds like you’re describing something like the <<toc-selective-expandable>> macro (take a look at the “Selective” tab here for a demo and comparison with the other TOC macros). You could put this in a $reveal popup (“dropdown”) in the same way you put anything else in a $reveal popup, though you’d need to include class="tc-popup-keep" to prevent the popup from closing when you click inside it.
However, the core TOC macros do depend on tag relationships, so you’ll need a variation if your data structure isn’t based on tags. I’d take a look at @pmario’s TocP plugin and/or @EricShulman’s TiddlyTools TOC, to begin with; both adapt the TOC macros to work with another field of your choice. If neither meets your needs out of the box, they may give you a good place to start.
Could you say more about your current/ideal data structure? What’s the relationship between Item 1, Item 1a1, and Item A? This will probably inform the kind of solution you need.
Depending on the complexity of your data structure (and on how you intend to use items in the tree structure—are they links? buttons? is it a navigational aid like the Contents tab on tiddlywiki.com?) you may also wish to consider an alternative presentation—for instance, a set of $select widgets, where each selection determines the options available at the next level. I say this in part because rendering a list of thousands of items may introduce some noticeable lag in your browser, even if you don’t have all the nodes open at once—and more complex items (e.g. a button vs. a simple link) will compound the issue.
If you do start to experience lag when displaying long/complex lists, you may want to consider adding an eventcatcher. Here’s a good introduction by @Scott_Sauyet and another demo by @CodaCoder.