Sorry, that folder was added to that drop-down in Firefox 6.0 because other users complained that the Unsorted Bookmarks folder wasn't in that drop-down, and they didn't want to have to access that folder through the Sidebar or the Library window. Goes to show that you can't satisfy all users, all the time.

The Menu Editor extension hasn't worked for the Bookmarks menu since the Firefox 2 versions. IMO, it was never properly updated for the changes made to the bookmarks system for Firefox 3+ versions. We're probably lucky that it works at all this many years after the original developer stopped updating it himself.

This works for me at hiding for me in 6.0 in both the Menu Bar drop-down and the BTB Bookmarks button (doesn't remove the separator there). Either add it as a new script in Stylish or to a userChrome.css file you create.

 @namespace url(http://www.mozilla.org/keymaster/gatekeeper/there.is.only.xul);

/* Hide "Unsorted Bookmarks" in bookmarks toolbar menu button and the menu bar drop-down */
#menu_unsortedBookmarks,
#bookmarksMenuPopup > menuseparator[builder="end"]
{display:none!important;} 

#BMB_unsortedBookmarks {
  display: none !important }

I combined this user script with the script mentioned in one of the comments about this user script.
http://userstyles.org/styles/47840/hide-unsorted-bookmarks