Your theme needs to support custom menus properly. Remove the selected menu from theme location drop down (select the blank item, save) and it should revert to your theme default.
Right, I understand there’s a question of theme compatibility. However, it fails to work on the default Twenty Eleven theme, which I know supports custom menus. And I’m inclined to believe it’s a deeper problem because none of the menu items show up when I make a Custom Menu widget, which would be theme-agnostic. So it’s gotta be something messed up in the configuration or database.
A site link may help us help you better…
Here you go: http://www.dog-dojo.com/boo/
My intent is to have custom menus set up on the main site (it’s a multisite installation), but I set up a fresh, alternate blog (Boo) for the purposes of experimentation. I notice the same behavior on ALL SITES in the network. Weird, right?