First thing is to create the xml folder, so right click on the res folder in your project and select New->Other…
Select Folder from the General section and click Next.
Enter the new folder name, xml, and click Finish.
Now create the settings.xml file, right click on the xml folder you just created and select New->Other…
Now make sure ‘Android XML File’ is selected in the Android section of the list and click Next.
Enter the full filename, settings.xml, in the Fild text box. Then select Menu from the list of resource types, and finally click the Finish button.
These instructions are for the Helios version of Eclipse but should be very similar for later version.
There that was not too painful was it :-)