I bought a Utilitech 5 light Xenon light kit w/transformer and dimmer. I'm wondering if it's safe to run the kit with just 4 of these lights instead of 5. I can disconnect individual lights but I lose some dimming capabilities. The transformer output is 12v 60w and each light is 10w.

Yes, it is.
It's almost always OK to run electrical items at less than the maximum load; in fact, it's usually a good idea.

Your living room wiring is probably rated for 1800-2400 watts, but it's common to have only 1 or 2 60-watt bulbs in use.

In fact, your lighting unit is already underrated by the manufacturer: it has 5 10-watt lights, for a total of 50 watts, but the supply transformer is 60 watts.

Thanks. I had a similar situation years back with Christmas Tree lights with almost disasterous results. Thanks again.