Fresh install of XFCE 4.8. http://tpnerdcore.pastebin.com/RJgyJjhk Merged menu does not seem to like the XFCE top level menu in the menu file. Using the default config that is located at /etc/xdg/menu/xfce-applications.menu. In xfce 4.6, this is handled fine. Here is a screen shot of what I'm dealing with in XFCE 4.8 http://bit.ly/e2hEbZ. Not sure if this a *feature* or bug.
Closing bugs as xfce4-menu-plugin is deprecated/unmaintained/merged into Panel since years.