Strange... however in the folder that has your character desktops ( for me it's C:\Documents and Settings\******\My Documents\EA Games\Ultima Online Legacy\User Data\$$$$$\Europa - **** replaces my real name, and $$$$$ my account name, so your entries for those will be different!) using a disguise kit and logging out while it is in effect creates a new folder under that name, BUT the original is still there.
I'd suggest having a look in that folder, and if there is one folder for each of your 'real' characters then deleting any folders for characters you no longer have (either the results of disguise kits or characters you deleted in the past, both will still be in there), and restart the client - it should then only show the genuine ones as options on the login.