fix below - I don't know how to write a hook for this...
function taxonomy_block_generate_list($hierarchy, $show_counts = FALSE) {
$items = array();
foreach ($hierarchy as $term) {
//i18n title, get translated title
$title = entity_label('taxonomy_term', $term);
if (taxonomy_block_count_nodes_term($term->tid) >= 1) {
if ($show_counts) {
$title .= t(' (@count)', array('@count' => taxonomy_block_count_nodes_term($term->tid)));
}
$item = l($title, 'taxonomy/term/' . $term->tid, array('attributes' => array('title' => $title)));
if (!empty($term->children)) {
$item .= taxonomy_block_generate_list($term->children, $show_counts);
}
$items[] = $item;
}
}
return theme('taxonomy_block_list', array('items' => $items));
}