Is there a way to filter the item list in purchase orders? Let's say we want to pick a category (custom field in the Item record as well) in the header of the PO, then the item dropdown should also show the items with that category too? Is this only possible by creating a custom list of items in the PO that is filtered and will be copied onto the native item field through scripting?

Yes, that's the only solution. Add a custom field using before load event and then use client script to add the select options dynamically.

Thanks for the confirmation.