The basic process is just as Dennis described in his answer.
The addition I have to make allow you to customize the icon displayed for the menu and also specify the placement of the item in the context menu.
Context Menu Icon
- Add an Icon String Value entry under the
- Specify the path to the icon for the item.
Position of Menu Item
- Add a Position String Value entry under the
Top to place the item at the top of the menu or
Bottom to place it at the bottom of the menu.
Below is a registry script of the procedures I described above. Paste it into notepad and save it as powershell.reg (or anything else but with the .reg extension). Then import it into the your system registry to add the menu item.
Windows Registry Editor Version 5.00
If you're feeling geeky enough and want to put multiple programs in a cascading menu, you can follow the instructions here.