Dynamic Menu

I’m trying to get my head around the best way to create a dynamic navigation. Essentially it’s a WordPress blog with 4 top level menu items – home / categories / authors / blog
Here’s the tricky bit. According to the design when you click on the category link for example you get a drop-down menu showing all site categories, from there hovering over a category (e.g. design) it gives you another drop-down (flyout) menu with a list of all (or the latest 10) posts from this category. Similar for author – the first submenu shows all authors and once you roll over each author you get a level 3 menu with number of his posts.

I was able to create custom menu items (using wordpress custom menu) for category (level 2) e.g

www.sitename.com/blog/?cat=3

in my case i know this is the “design” category, and i can do the same for authors e.g.

www.sitename.com/blog/?author=3

but when i get to the level 3 flyout i can’t list the posts from the selected category or author …

would i have to build the custom menu in the header.php or is there a way to achieve the above functionality with WP custom menus?

many thanks
Mariya