List posts under category listing

Hi, I’m building a new site based on expandable menus.

I have a first level menu displaying all first-level categories, when you hover over a category a second level menu pops out displaying each category Subcategories.

This is working just fine using wp_list_categories() but im willing to do a third level menu that displays all posts under a subcategory but that I don’t know how to do.

My current menu structure is:

<ul>
<li>Cat-1
<ul class="children">
<li>Child1</li>
<li>Child2</li>
</ul></li>
</ul>

And i want it to be:

<ul>
<li>Cat-1
<ul class="children">
</li>
<li>Child1
<ul class="posts">
<li>Post1 under Child1</li>
<li>Post2 under Child1</li>
</ul></li>
<li>Child2</li>
</ul></li>
</ul>

Do you know about a plugin or a code snippet that can help me achieve that functionality?

If i haven’t been clear enough I’ll gladly answer any questions.