I owe you dude! BIG-TIME!.
Ok so this is how it worked:
1) Added the lines in the correct order.
Code:
<script src="jquery-1.6.3.min.js" type="text/javascript"></script>
<script src="superfish.js" type="text/javascript"></script>
<script src="script.js" type="text/javascript"></script>
<script>
$(document).ready(function() {
$('ul.menu').superfish();
});
</script>
2. Removed jquery from WordPress default installation.