Creating menus from terms
If I understand your question, I think you want the Taxonomy Menu module:


  
  Custom Menu per vocabulary
  Uses the default taxonomy term path or custom paths
  Integrate with Views
  Integrate with Pathauto: use URL/path aliases
  Does not interfere with other menu modules
  


However, the last time I did this, I wrote my own module.  Essentially, I wired up taxonomy hooks to call menu_link_save() for new terms, and menu_link_delete() when terms were deleted.  This is a rather complicated process.  If you go this route, I would study the submit handlers for the menu module to see how everything works.  You also need to study the taxonomy API to see how to walk trees when you have a hierarchical vocabulary.