If you decide you do NOT want to ship to certain states within the united states, you could do a simple database hack and remove any state you wish, here’s how (note: i am using Magento Version 1.6.2):
Get into your database via phpMyAdmin or SSH, open the table ‘directory_country_origin’ and simply delete the rows (states) you don’t want showing up in your frontend.
For example I do not ship to puerto rico so i removed line 52 from the ‘directory_country_origin’ table. Now it no longer shows in the dropdown at checkout.
Quick n dirty workaround but nevertheless…