Note: I'm running Zipeg - third party zip extraction software. Could that be the cause?
Go to Start –> Run and copy and paste the following command:
This will automatically restore Compressed (Zipped) Folder in Send To Menu.
Download this Compressed (Zipped) Folder file, unzip it and save it in the following location:
C:\Documents and Settings\%username%\SendTo
where C is your Operating System drive and %username% is your user folder which you’ll find in Documents and Settings.