Unfortunately, the bug has been introduced with the recently released service pack. We caught it shortly after and it is already fixed in the latest builds. You can add the following CSS to your page to get it working:
| background: #f0f0f0 url('<%= Page.ClientScript.GetWebResourceUrl(RadMenu1.GetType(), "Telerik.Web.UI.Skins.Vista.Menu.submenuBackground.gif")%>') repeat-y 27px 0;
... or open a support ticket and request a newer version of the assembly.
the Telerik team
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