Normally under your blog, you can list the categories as drop downs, but not the blog posts.
This wouldn't make any sense, because a blog can contain thousands of posts.
The easiest way for you to understand menus would be for you to go and use the menu feature under appearance. There you can add your pages and categories as you please, rename them, move them around.
I see that you are using the TwentyTen theme, so this option is available to you.
One word of warning. I don't know if you modified the Twenty Ten theme but normally, you should not do that. If you did and you and upgrade becomes available, your changes will be lost. The TwentyTen theme was designed to be used along with a child theme.
Finally, just a little thing and I don't want to be insulting here, but it's blog not blogs. You have one blog and many blog posts. ;)