Index: menu_block.module
===================================================================
--- menu_block.module	(revision 111)
+++ menu_block.module	(working copy)
@@ -659,7 +659,17 @@
     }
     // Set a class if the link has children.
     if ($data['below']) {
-      $class[] = 'expanded';
+      //check if the children links are not hidden
+      $shown = FALSE;
+      foreach ($data['below'] as $child) {
+        if (!$child['link']['hidden']) {
+          $shown = TRUE;
+        }
+      }
+
+      if ($shown) {
+        $class[] = 'expanded';
+      }
     }
     elseif ($data['link']['has_children']) {
       $class[] = 'collapsed';