Is there any way to display underlined/highlighted characters in a
custom Context Menu?  Preferrably with scrolling.  HTML maybe?

OwnerDraw menus will give you the flexibility to draw in the context menu. 
But it's a one-time call, meaning that when the user right-clicks the mouse,
the context menu will raise the DrawItem event, providing your one chance to
draw in the menu.  Unfortunately, this does not allow you to create controls
or perform further UI operations such as scrolling.

If you need the menu to act like a form, the best solution is usually to
replace the menu with a popup form instead.  That way, you can do pretty much
anything you want.

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