Pull them up in Miscellaneous Item Maintenance and uncheck the "Allow Use In x" options for each module that is currently checked.

Sage forces you to have at least one checkbox enabled...

There's an idea to add this feature:

https://www5.v1ideas.com/TheSageGroupplc/Sage100ERP/Idea/Detail/26549

Good catch, wasn't aware of that.  

Well, using VI to set InactiveItem to Y or using Custom Office to add the field to the Miscellaneous Item Maintenance screen so you can toggle it there won't work either as the business object says it can't be set for the current item type.

Short of the idea getting implemented, only other way i can think would be to use a script on either the pre-validate of the item code field or a pre write on the detail table so oScript.SetError can be used with a warning.  As for how to determine the item to throw the warning on, could always create your own checkbox UDF to indicate the item is inactive and add it to the Miscellaneous Item Maintenance screen and check the UDF in the script.

Customized ALE's can filter them out, based on a UDF checkbox.  We've done that before, but it's a bit awkward.

That is a good way to handle preventing them from being selected from the lookup.  Script would only be needed if users actually key them in.