This is an extension of the dynamic select menu function I wrote a while back. It will include children items of the top level parents.

dynamic-select-menu.php

<?php

function wp_nav_menu_select_sort( $a, $b ) {
	return $a = $b;
}

function wp_nav_menu_select( $args = array() ) {
	
	$defaults = array(
		'theme_location' => '',
		'menu_class' => 'select-menu',
	);
	
    $args = wp_parse_args( $args, $defaults );
	 
	if ( ( $menu_locations = get_nav_menu_locations() ) && isset( $menu_locations[ $args['theme_location'] ] ) ) {
		$menu = wp_get_nav_menu_object( $menu_locations[ $args['theme_location'] ] );
		 
		$menu_items = wp_get_nav_menu_items( $menu->term_id );
		
		$children = array();
		$parents = array();
		
		foreach ( $menu_items as $id => $data ) {
			if ( empty( $data->menu_item_parent )  ) {
				$top_level[$data->ID] = $data;
			} else {
				$children[$data->menu_item_parent][$data->ID] = $data;
			}
		}
		
		foreach ( $top_level as $id => $data ) {
			foreach ( $children as $parent => $items ) {
				if ( $id == $parent  ) {
					$menu_item[$id] = array(
						'parent' => true,
						'item' => $data,
						'children' => $items,
					);
					$parents[] = $parent;
				}
			}
		}
		
		foreach ( $top_level as $id => $data ) {
			if ( ! in_array( $id, $parents ) ) {
				$menu_item[$id] = array(
					'parent' => false,
					'item' => $data,
				);
			}
		}
		
		uksort( $menu_item, 'wp_nav_menu_select_sort' ); 
		
		?>
			<select id="menu-<?php echo $args['theme_location'] ?>" class="<?php echo $args['menu_class'] ?>">
				<option value=""><?php _e( 'Navigation' ); ?></option>
				<?php foreach ( $menu_item as $id => $data ) : ?>
					<?php if ( $data['parent'] == true ) : ?>
						<optgroup label="<?php echo $data['item']->title ?>">
							<option value="<?php echo $data['item']->url ?>"><?php echo $data['item']->title ?></option>
							<?php foreach ( $data['children'] as $id => $child ) : ?>
								<option value="<?php echo $child->url ?>"><?php echo $child->title ?></option>
							<?php endforeach; ?>
						</optgroup>
					<?php else : ?>
						<option value="<?php echo $data['item']->url ?>"><?php echo $data['item']->title ?></option>
					<?php endif; ?>
				<?php endforeach; ?>
			</select>
		<?php
	} else {
		?>
			<select class="menu-not-found">
				<option value=""><?php _e( 'Menu Not Found' ); ?></option>
			</select>
		<?php
	}
}