I used Agregado a while back on my personal blog so I am kind of familiar with it.
For some reason your site is serving the 1.3.2 version of JQuery. You can verify by checking this link: http://inversekarma.in/wp-includes/js/jquery/jquery.js?ver=1.4.2
WordPress 3.0 shipped with JQuery 1.4.2. It is possible than when you upgraded the new install did not overwrite the older version of Jquery. Try manually uploading it to wp-includes/js/jquery/jquery.js
It could also be a plugin conflict which you can test by disabling all your plugins and see if the drop downs work. If so start activating plugins one at a time till you find the culprit.
Also remember that Agregado came out back when we were at JQuery 1.2.6 so some of the syntax might have depreciated.
Please post back with your results.