This error is in 7.10 final as well.
See this forum post
http://ubuntuforums.org/showthread.php?t=604877
My work-around was editing out a <NOT> line in
/etc/xdg/menus/applications.menu
This a bug in the logic of nesting files for local and global controls.
Alacarte is Broken as it currently is released.
Upgrades may not see this error, New installs will.

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menu editor won't accept changes
https://bugs.launchpad.net/bugs/96706
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