1) If you want the sub menu to be called when accepting an item choice, you just need to use the same input key for both the Accept and the sub-menu call key.
2) Using the Cancel key should close the sub-menu.
3) No, but you might just want to use Tabs instead of an item type list box? Or just don't show the item types at all (None type display), just navigating them with tab.
The accept/cancel key are set up in Base/Control > Game Controls.