Define the first menu (system menu) with layout vertical and the second menu (game menu) with layout horizontal.
Then use collectionUp/Down and the left/right buttons in your controls.conf to configure your menu controls.
In addition, set enterOnCollection and startCollectionEnter to true or yes in your settings.conf file.
That should do the trick; the rest is just a matter of writing your layout.xml to show things the way you want them to.