I don't use AppleWorks, but maybe reduce the number of recent items. To change the number, go to 'preferences' and then 'files' in the menu although you probably already know this because the default is ten which should be fine - it shouldn't cut anything off.
I don't have a solution to the alphabetical problem (which I also have in my Appleworks recent items menu). However, you can go to: home/documents/Appleworks User Data/Starting Points/Recent Items/ and delete it's contents. This has the significant effect of speeding up Appleworks performance and stopping the spinning beach ball much more often (if you have a lot of files in this folder).