List all Posts under heading in wp_list_pages menu

You’ve got the right idea, however;

1. Don’t use query_posts, use get_posts instead
2. Using the wp_list_pages filter will just add the list at the end
3. Using template tags like the_permalink() will echo the output, so you can’t use it in string concatenation

You’ll need to use a custom walker (the family of classes for generating hierarchical content), which will allow you to inject your list right after the posts page:

/**
 * Add 10 most recent posts as a child list of the posts page.
 * 
 * @link https://wordpress.stackexchange.com/q/141929/1685
 */
class WPSE_141929_Walker extends Walker_Page {
    function start_el( &$output, $page, $depth = 0, $args = array(), $current_page = 0 ) {
        parent::start_el( $output, $page, $depth, $args, $current_page );
        if ( $page->ID == get_option( 'page_for_posts' ) ) {
            $posts = get_posts(
                array(
                    'posts_per_page' => 10,
                )
            );

            if ( $posts ) {
                $output .= '<ul class="children">';     
                foreach ( $posts as $post ) {
                    $output .= '<li><a href="' . get_permalink( $post->ID ) . '">' .get_the_title( $post->ID ) . '</a></li>';
                }
                $output .= '</ul>';
            }
        }
    }
}

And in use:

wp_list_pages(
    array(
        'walker' => new WPSE_141929_Walker,
    )
);