When you create a new embed option using content.ini, you can just put a template called menu.tpl (in your case) in the override/templates/datatype/ezxmltext/ folder in your site design.
I think the answer you specify is for insert custom tag like factbox, quote. I want it to implement in the insert object pattern just like in the ezwebin extension.
And you have tried:
* to give "[menu]" a more unique name
* move it higher in the override.ini file
* cleared cache
* There are now warnings in debug ouput about not finding your override template * the template is in */override/templates/embed/menu.tpl
I'm just asking since I can't see any obvious reasons why it doesn't work.