Update: In iOS 6, the method detailed below of hiding apps from your purchased list right on your iPhone does not work. You must, unfortunately, venture into iTunes to perform the task.
With iCloud, you can restore previously deleted apps right from the App Store on your iDevice. If you open up the App Store app, tap Updates in the lower-right corner, and then tap the Purchased line above the list of apps in need of updating, you can browse a list of all of your purchased apps or those not currently on your phone. These lists are useful for reinstalling deleted apps, but they can be difficult to manage if you are a frequent App Store shopper and the lists grow from dozens into the hundreds.
Thankfully, if you simply swipe on an uninstalled app on either Purchased list, the iCloud icon to the right of the app's name will turn into a red Hide button. Tap Hide to remove the app from the list.
Now, hiding an app doesn't delete it for good. It just moves it to a hidden list. You can see your hidden apps by scrolling down to the bottom of the Featured, Categories, or Top 25 pages in the App Store app on your iDevice and tapping on your Apple ID.
Next, tap View Apple ID.
Next, tap Hidden Purchases under the iTunes in the Cloud header. This takes you to a list of your hidden apps. Simply tap the blue Unhide button next to an app to add it back to your Purchased lists.
In related news, Jason Cipriani shows you how to hide and unhide purchased apps in the Mac App Store. And if you are in a cleaning frenzy, read my post on how to delete unwanted apps from iTunes.