I've been waiting for some time to be able to hide certain hours in my google calendar and its finally arrived care of Google Calendar Labs' new feature called "Hide morning and night". Go to the Labs bit, enable it and then click & drag away to your heart's content!
Enjoy!
http://feedproxy.google.com/~r/GoogleAppsBlog/~3/gLkB-lrJXIU/hide-morning-and-night-hours-in.html