In SharePoint 2007, any custom templates added through the stsadm command stdadm -o addtemplate appear under the "Custom" tab.

This may not appear sufficiently corporate for some people. One easy fix is to simply modify the locale file at C:\Program Files\Common Files\Microsoft Shared\web server extensions\12\Resources\core.en-US.resx. Just find

  <!--TemplatePickerControl -->
  <data name="TemplatePickerControl_Custom">
    <value>Custom</value>
  </data>

and modify <value> to anything you like.