Well, it needs to be in your FPSC folder - but this causes problems, particularly rolling back the folder (is that how I put it?) so you loose files. At least that's what happened to me. Here's what to do:
1) Open up the menu maker directory and make a new folder called 'Files'
2) Open up FPSC directory and go into the 'Files'
3) Copy the language bank over to the 'Files' folder in the menu maker directory.
4) In the MM directory (not in language bank) make a new folder called gamecore.
5) Go back to the FPSC directory (in it's 'Files' folder) and copy the folder 'backdrops' that is inside gamecore.
6) Put 'backdrops' inside MM's gamecore.
7) It should work, and you have any menu-related files you'll need in there. If you make a new picture for a menu, be sure to copy it in both MM's directory and FPSC's directory. That's how I do it, but I don't use Menu Maker much anymore...