最初の文字でアルファベット順にグループ化するのが最善の方法ですか？

    $res      = array();
    while ($r = mysql_fetch_array($q)){
      $currentletter = substr($name,0,1);
      $res[$currentletter][]  = $name;
    }

    foreach($res as $key=>$val){
       /// here you add your li
       /// here $key will give you letter and $val will give you name
       echo $key;
       foreach($val as $reqvals){
          echo $reqvals;
          echo "<br>";
       }
    }