1) Currently I have drop down menus for primary & secondary links. They need to now be mega-menus, and need to include the item teaser as well as the link:
<li>
<a href='#'>Link 1</a>
<p>Teaser for this link</p>
</li>
2) We also want to include webforms or any content in a menu list item. I am hearing that blocks are the way to go, but again, am a bit confused.
Can anyone help?
Try the megamenu module. I haven't used it, but it appears to be designed to do exactly what you are looking to do. Unfortunately, it appears that the capability to add blocks inside menu items only exists in the version for Drupal 7, but the D6 version supports most of the functionality you need.
If you're using Panels, then the Menu Minipanels module might be of use.
Megamenus built using (mini) Panels, which provides tremendous flexibility in what can be displayed. New stable releases due soon for both Drupal 6 and 7.
This is pretty good too:
Click-by-click beginner's tutorial: http://drupal.org/node/984560#comment-3922442
