// Front end only, don't hack on the settings page
if ( ! is_admin() ) {
    // Hook in early to modify the menu
    // This is before the CSS "selected" classes are calculated
    add_filter( 'wp_get_nav_menu_items', 'replace_placeholder_nav_menu_item_with_latest_post', 10, 3 );
}
 
// Replaces a custom URL placeholder with the URL to the latest post
function replace_placeholder_nav_menu_item_with_latest_post( $items, $menu, $args ) {
 
    // Loop through the menu items looking for placeholder(s)
    foreach ( $items as $item ) {
 
        // Is this the placeholder we're looking for?
        if ( '#latestpost' != $item->url )
		   continue;
 
        // Get the latest post
        $latestpost = get_posts( array(
            'numberposts' => 1,
        ) );
 
        if ( empty( $latestpost ) )
            continue;
 
        // Replace the placeholder with the real URL
        $item->url = get_permalink( $latestpost[0]->ID );
    }
 
    // Return the modified (or maybe unmodified) menu items array
    return $items;
}