My spare time's a bit limited I'm afraid, but if you can send me a small bootable subset of your current setup I should be able to fix this for you. It's rather difficult to do it based solely on the layout.xml, because I'd have no way to test whether what I did was correct. Just send me a PM with a link, and I'll download and provide you with a fixed layout.xml file.
Basically what I need is your current setup with a single menu item; I can take it from there.