I tried with Ubuntu Desktop 12.04 LTS and it's working.
But the menu you are using has complete different function. This is for copy/paste in VMware itself. Select a VM in the left tree and you can copy it. And then paste it in the tree.
I checked and if copy and paste is working you can use SHIFT-INSERT to copy text to a terminal and CTRL + V to copy text/files to other stuff like the ubuntu desktop.