Cant create a taxonamy menu block
I don't think this can be answered here. It seems to be a call to Drupals Batch API that fails. But why can't be answered without some debugging and is not in the scope of your question.

Basically you are doing it right. You can try the otherway round and add menu items to you desired menu and than let them point to taxonomy/term/123. This should give you the same result.