"Show application icons in menu" does not work when setting gtk-menu-images=0 in .gtkrc-2.0 or disabling Appearance/Settings/Show images in menus.
An enhancement. I think that this is how it should be with every menu which is listing applications. 1. Set gtk-menu-images=0 (or disable images in menus via Appearance). 2. Launch Caja or Nautilus. 3. Open "Open with..." menu of context menu. 4. Application images still appear.
Yeah, xfdesktop isn't going to override the gtk-menu-images setting. The "Show application icons in menu" is to help with slow systems where you want icons except for the menu. Marking as won't fix, sorry.