Google wants to kill Microsoft Office & Exchange servers so they don't make it easy to sync with Outlook-- which I live by.
Although you can assign categories to your contacts in Outlook, Gmail, and Hotmail, (to my knowledge) Android doesn't have a "categories" field for contacts (nor anything similar). There's certainly no category field available on my phone. So I don't think there's any native way to sort by categories from an Android phone. (I could be wrong.) Maybe some 3rd party app, like Companionlink has implemented their own database on the phone to remedy that. I don't know.
I use Hotmail's cloud to sync my Outlook contacts and calendar with my Android devices (and between my PCs)-- even though I primarily use Gmail (not Hotmail) for email. I've detailed how to do that at the following link. It works with Outlook 2003, 2007, and 2010 (but not OutlookXP/2001). You don't need to install any kind of app on your phone because Android can sync directly with Hotmail's servers (which behave essentially like Exchange Servers). However, there is a free Hotmail app available. I'm not sure if the Hotmail app gives your phone the ability to sort on categories (since I've only ever felt the need to sort on categories from my PC, not my phone).
http://androidforums.com/android-ap...id-without-3rd-party-app-exchange-server.html
If you employ the above Hotmail synchronization method, there is an inelegant workaround that you could use to essentially sort by categories. If you create email distribution lists of everybody in a particular category, then you can display contacts in a given Hotmail distribution list (or any combination thereof). Instructions follow.
This may vary with the phone’s make or model, but on my phone it goes like this:
Click on Contacts.
Select Display options
Choose account
Check only the checkbox of the category that you want to limit yourself to viewing, like “Friends” & “Family”. (You can click any combination.)
Hit “Done”.
You’ll view contacts for those “categories”. You can go back and redo the “display” options at any time.
As a side note, I skipped from Outlook 2003 to Outlook 2010 so I'm not sure about Outlook 2007's capability, but I can tell you that Outlook 2010's ability to implement, colorize, and manage categories (especially for entire groups of people at once) is far superior to that of Outlook 2003 (let alone OutlookXP).
As you probably know, Syncdroid.net has a list of the Outlook/Android syncing solutions. CompanionLink seems to be a good one. (And Syncdroid pimps it so hard that I think they get a commission from linked sales.) I bought gSyncit for my parents because they're on OutlookXP (which is no longer compatible with Hotmail), and it seems to work quite well-- though I haven't played with categories on it.
Outlook4Gmail seems like a promising, free app, but it only syncs contacts, not calendar.
I'm not a fan of MyPhoneExplorer or any solution that requires me to be near my PC in order to sync or that requires me to do a manual sync. I want all of my devices synced, all the time.
Good luck!