Flash Player's "Settings" panel has a minimum size of 214x137 pixels. If your embedded SWF is smaller than 214x137, Flash Player will not have enough room to display the settings panel, and will make the "Settings..." menu item inactive (grayed out). If you would like the "Settings..." menu item to be clickable, you will need to ensure your SWF is at least 214px wide by 137px tall.

This size constraint also applies to the Express Install dialog.