I have created a new group in Empathy IM by right-clicking on a contact, then Edit and Add Group.
How do I remove a group?
OK, obviously Murat Gunes answer is correct, but that's not exactly what I meant. When I right click on the group name and select Remove it removes the group from the main window.
However, the group is not purged from the system. When I right-click on a contact again and select Edit, I can still see the group in the list and I can even put a contact into that group, which then makes it appear again in the main window.