Yes correct with CSS. The CSS we used was below and you'd need to edit the background color of cccccc to be whatever your menu background color is. Then of course you need to add the -menuhighlight module suffix too:
.moduletable-menuhighlight {
background: none repeat scroll 0 0 #cccccc;
color: #FFFFFF;
margin-top: -27px;
padding: 0px;
position: relative;
z-index: 1;
}
Yes second level auto arranges the menu items. Unless you use a menu module and publish the module to a column. Then you can specify which items show in it.