Sorry to hear you’re running into this problem. I believe that it should be fixed in the most recent release of FeedWordPress (v. 2012.1212, released earlier today), which includes a series of compatibility fixes for changes recently introduced in the WordPress admin UI.
O.K. Could you create a separate thread for that issue, and describe in a bit of detail what you expect to see happen with the dropdown, and what’s happening instead? (If you’re able to take screenshots that would help somewhat.)
If it’s alright with you, I’ll mark this request as resolved (for the menu issue which the FWP upgrade has seemingly resolved) and we can troubleshoot issue with the link-category dropdown in the other thread.