I suppose that you have associated the file extension TXT with UltraEdit. Open Advanced - Configuration - File Associations and look if you can see there .txt. That's okay because that is not really the problem. When associating a file with UltraEdit following happens (described here for file extension .txt).
In the registry under
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\.txt]
the existing default value txtfile is replaced by UltraEdit.txt.
Additionally following registry keys and values are added:
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\UltraEdit.txt]
@="Text Document"
"Old Default"="txtfile"
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\UltraEdit.txt\shell]
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\UltraEdit.txt\shell\open]
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\UltraEdit.txt\shell\open\command]
@="\"C:\\Program Files\\IDM Computer Solutions\\UltraEdit\\uedit32.exe\" \"%1\""
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\UltraEdit.txt\shell\print]
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\UltraEdit.txt\shell\print\command]
@="\"C:\\Program Files\\IDM Computer Solutions\\UltraEdit\\uedit32.exe\" /p \"%1\""
"Old Default"="txtfile" is created by UltraEdit to be able to restore the previous association when you delete this association in the configuration dialog of UltraEdit.
Text Document is the description you can enter in the configuration dialog before clicking on the button Assign.
C:\\Program Files\\IDM Computer Solutions\\UltraEdit is the path to UltraEdit executable which depends on your environment.
You have to check now if the path to uedit32.exe is correct stored in the registry. That can be simply verified by double clicking on a file with extension TXT. If UltraEdit is started and the file is opened, the path is surely correct.
Now I must explain some Windows Explorer internals because what is shown in the context menu New of a folder is defined by Windows Explorer and not by UltraEdit.
The Windows Explorer looks on all file extensions in [HKEY_LOCAL_MACHINE\SOFTWARE\Classes\] (linked to [HKEY_CLASSES_ROOT]) for following key (again explained on .txt):
[HKEY_LOCAL_MACHINE\SOFTWARE\Classes\.txt\ShellNew]
"NullFile"=""
If that (empty) string value exists under key ShellNew, Windows Explorer looks on the default value and when the referenced key can be found and contains the command for opening files with that extension, it automatically adds following to the registry:
[HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\Discardable\PostSetup\ShellNew]
"Text Document"=hex:00,00,00,00,00,00,00,00,00,00,00,00,00,00,54,00,65,00,78,00,74,\
00,64,00,61,00,74,00,65,00,69,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,2e,00,74,00,\
78,00,74,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,55,00,6c,00,74,00,72,00,61,\
00,45,00,64,00,69,00,74,00,2e,00,74,00,78,00,74,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
ff,ff,ff,ff,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,00,\
00,00,00,00,00,00,00
Don't try to manually edit the binary values under this key in the registry. It would be useless because Windows Explorer manages the binary values of this key completely automatically.
So if you can't see no menu item to create a new text file in the current folder, the problem is maybe the missing Nullfile string value under subkey ShellNew of key .txt. You could check this with Regedit. Or the menu item is there, just with a different name because of different description.
PS: I use English UltraEdit which surely does not contain German strings. But the default description for .txt on my German Windows XP was Textdatei as stored as default string value under [HKEY_LOCAL_MACHINE\SOFTWARE\Classes\txtfile]. But the registered menu item name (= name of the binary value) is Textdokument. I have not found out yet from where my German Windows XP gets the name Textdokument for text files.