Here is a response from Project Seven about their Menu embed code and full breakdown of the line you requested. Please review the differences on dtelabs.com. I know it's a different menu embed code, so I keep leaning toward this being a Menu Magic settings issue, but then I get a response like this from the Menu plugin maker:
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Hi Tom,
The initializer options do not affect the number of sub levels that the menu can display. For info, here is the description of each:
args:
0 = id of root menu bar div
1 = menu type: 1=horizontal, 0=vertical
2 = animation option
0=None
1=Reveal Right -font size
2=Reveal Down -line height
3=Combined for Horizontal menu -dual for horizontal -line height & text slide
4=Text Slide -style.textIndent
5=Fade
6=CSS3 Zoom
7=CSS3 Tumble (was

8-CSS3 Pivot
9=CSS3 Wink
99=Special Vertical height Slide (for Accordion Mode)
3 = sub menu top offset aount (in pixels)
4 = sub menu left offset amount (in picels)
5 = sub menu position 0=right, 1=left
6 = Horizontal Edge Detection: 0=None, 1=Window Edge, 2=Constrain to Menu Width
7 = -Horizontal 1st level sub menu alignment:
0=Left edge of trigger
1=Centered
2=Right Edge of Trigger
8 = Use MouseOver Delay 1=yes, 0=no
9 = Image swap options:
0=normal img only,
1=normal and over only,
2=normal, over and open,
10 = Enable rollover for open/mark states:
0=none
1=enable rollover for open state,
11 = Enable Current Marking: 0=no 1=yes,
12 = Include URL parameters when matching for Current Mark: 0=no 1=yes
13 = Open Subs Upward 0=no 1=Yes
14 = Menu z-index: 900 default value
15 = Enable Mouse Action: 0=No, 1=Yes
16 = Justify Horizontal 1st level Sub Menu 0=No, 1=Yes
17 -Enable Fixed Position
The menu will display as many syb levels as are in the actual source code of the page. Each nested <ul> is a sub menu. The PMM3 system will read the nested <ul> structure and build the menu based on that structure. There is no limitng, ever.
On your page the sub menu <ul> markup is NOT present in the html source code. Your dynamic php needs to be adjusted to properly output the nested <ul> sub menu structure. You can easily see this by opening the page in your browser and looking at 'View Page Source' or opening the Developer Tools.