I just saw that in my account and feel it's kind of confusing. But then, I usually let filters label my messages, so it should be okay.

Yeah, I actually sent an email to gmail help asking where my labels went before I realized where they had moved it. It seems too complex of a change for it to be a mistake...as opposed to when the accounts listed 1TB as the storage capacity. I prefer the separate menu, especially when you have many labels. The drop-down menu can get pretty large that way. Maybe they are addring room for sorting buttons to the top, such as sort-by-date or sort-by-sender. As gmail gets more functionality, it will be a chalange to keep the interface clean and user-friendly.

I think it makes sense to move all actions into a single select box. I was actually looking for where to label and always instinctively looked in the middle box with the other actions. I find the label box is harder to notice. Of course we are talking about seconds here. If you look look enough you find everything, no matter if it's hidden.

I also thought gmail was broken when they moved the label dropdown box. I think the new location is not as good because you have to scroll down to get to the lables.

I don't have to scroll down. I am using Firefox. I suppose you are using Internet Explorer.

Here's Firefox, by the way (great browser):
http://www.mozilla.org/products/firefox/