OK, I found the answer to this one and its surprisingly simple but maddeningly frustrating at the same time.
All you have to do is click “Screen Options” while viewing the “Custom Menu” manager and place a check beside “Posts” to show the elusive hidden “Posts” widget.
Now you can add “Posts” to your custom menus. Who knew anyone would ever want to do that?
Why this is not part of the default screen options, while “Tags” is, escapes me, but that’s the default none the less.
Also, just to get a few more bytes out of this rant..
Whoever decided that “Excerpt” should no longer be visible on the post editor screen should have to answer at least one of the 5 emails I get per day with on the topic of “What happened to the excerpt field, it was there, now its gone”. Brilliant.