Kida155,
After doing a little testing, the issue is the second line in your MediaWiki:Wiki-navigation file:
**#|Characters
I understand what you are doing, but unfortunately the code doesn't handle that construct. Using
**<nowiki>Characters</nowiki>
will do the same thing and is supported by the code. After making that modification on my test wiki with your Wiki-navigation file, the submenu appears. If I have time I will try to support the construct that you are using, but if you want it to work now, I recommend making that change.
I also noticed that the script is currently being loaded three times, twice in w:c:istaria:MediaWiki:Common.js and once in w:c:istaria:MediaWiki:Wikia.js. The first time, the code on the Wiki Developers Wiki is loaded (for all skins). The second and third times, your local copy is loaded for the oasis skin only.
I personally would recommend consolidating the oasis skin modules, either in w:c:istaria:MediaWiki:Wikia.js and removing the oasis-only skin code from w:c:istaria:MediaWiki:Common.js, or deleting w:c:istaria:MediaWiki:Wikia.js entirely (the only module loaded there is already loaded in w:c:istaria:MediaWiki:Common.js). In either case I would not load this code from the "all skins" section of w:c:istaria:MediaWiki:Common.js, as it doesn't have any function in monobook. I also would recommend loading the code on the Wiki Developers Wiki rather than your local copy just in case it receives any future enhancements or bug fixes (like supporting your construct), but that's entirely up to you.