Show Desktop - Adding shortcut to popup Menu.

I'm not sure I'm following correctly here, but the way I understand it is that you are adding your Show Desktop shortcut to a TLB menu. When you do so, it behaves like a folder initially, instead of a shortcut, then simply disappears after the menu closes and reopens. I'm not sure why this is happening, but here's something you can try: Make your own file that does the same thing.
The show desktop shortcut is really just a windows batch file, kind of. To make your own, open up a new notepad document, and copy and paste the following text into it:

Code:

[Shell]
Command=2
IconFile=explorer.exe,3
[Taskbar]
Command=ToggleDesktop

Save this file with the name and path of your choosing, but make the extension .SCF instead of .TXT. SCF should be registered as a Windows Explorer Command file extension. Then you just make a shortcut to this file in your TLB menu, and voila.

Hope this helps!