In a manually created menu, when a taxonomy term is a parent with children, the children never display. Bug?
Have you tried editing the parent menu item and enabling the 'Expanded' checkbox? This module may also come in handy: http://drupal.org/project/menu_expanded

Keep in mind that in many themes, the stock menu for primary links / secondary links is not a multi-level menu and so even if expanded renders the child items in HTML, they may not render properly in the actual menu. If this is the case, you may wish to look at implementing a menu block with one of the menu modules such as: http://drupal.org/project/superfish