Per Henrik Lausten answered my question on stackoverflow:
if you use the Application Layout control and add a container node with children to the Utility Links or Application Links section, you will get a drop down. Here's an example:
<xe:basicContainerNode label="Container 1">
<xe:this.children>
<xe:basicLeafNode label="Link 1"></xe:basicLeafNode>
<xe:basicLeafNode label="Link 2"></xe:basicLeafNode>
</xe:this.children>
</xe:basicContainerNode>
Thanks Per.