Under Advanced Settings at the library level, I have the "Opening Documents in the Browser" setting set to "Open in the client application".
The options available on the menu are: View Properties, Edit Properties, Edit in Browser, Check Out, Version History, Compliance Details, Workflows, Download a Copy, Shared With, Delete.
Is the display of the "Edit in InfoPath" menu item only controlled by a list setting, or could some other setting be interfering? Is there anything in the IP template itself that comes into play?