This is REALLY un-intuitive. I spent hours trying to figure out how to create sub-menus in the Twenty Ten theme. I was using a custom menu already, so even if it works with default menu out of the box, it doesn't work with custom menus.
Searching for how to get submenus working in Twenty Ten came up with many irrelevant results, and it took hours of wading through these to find this one post which helped, although incidentally.
For some reason googling for "wordpress twenty ten submenu" didn't find this page, which would have helped a lot: http://en.support.wordpress.com/menus/. It was only by adding the word "drag" that I actually found it, which required me to already know that you can drag items around.
It's also especially unhelpful that the available pages to add, in the Pages list, don't appear to be in any kind of useful order, nor to show the hierarchy of parent-child relations.
Anyone trying to do this and finding it painful might like to try out the Gecka Submenu plugin.
To make it easier to build these menus, you could try the Gecka plugin to generate sub-menus automatically from a page's parent-child relationship.