Menus can be a bit cumbersome. The key thing is that you need to create the menu first, then activate it on the left hand side. Here’s what your structure looks like once you’ve created a menu:
Now you need to head over to the left hand side and pick said menu from the list under Theme Locations. If this is empty, then the menu isn’t active and won’t show up (like in this screen shot):
Pick it and save it – then you should be on to a winner:
I’ve made a screencast about this too – have a look here: http://wpguru.co.uk/2011/01/custom-menus/