That can be caused by having some bookmarks with a long title in the main Bookmarks menu.
The width of a column in the Bookmarks menu list is in current Firefox versions automatically adjusted to fit the bookmark with the longest name.
You can check the names of the bookmarks and make the longer ones shorter.

Thanks! That was the answer. I have a lot of work to do!!

I have gone back to FF 3.6 because of this same problem with all later versions... words are spaced F A R apart making it really hard to read the bookmark drop down lists, tabs, etc. I am not going to go through hundreds of bookmark names to shorten just a few that may be too long, takes too much time that I just don't have, especially when I have no idea how many characters are allowed before the problem is triggered. FF can either fix this or lose a user.

I can sympathize. It did take the time to shorten my bookmarks. The worst ones were the miscellaneous bookmarks I didn't have in folders. Most of them were old so I deleted them. Good luck!

I did the easy thing.... installed Opera. It transferred my bookmarks with no problem and it's a lot faster.