to add the menu (dropdown) this mod looks for $template_hook[navbar_search_menu] and replaces it with the following
HTML Code:
<tr>
<td class="thead" align="$stylevar[left]">$vbphrase[google_search]</td>
</tr>
<tr>
<td class="vbmenu_option" title="nohilite">
$vboptions[gtsearch_search_box_code]
</td>
</tr>
please follow directions..
recheck your settings at your Google CSE account - the form is created for you there