I've set the latest posts module to have the setting of using the specified menu item, and I've entered the ItemID of the blog component in the box.
I've cleared the cache, but the Latest Posts module continues to use the wrong URL, appending an itemID of 101 and using /component/easyblog/blah instead of my optimised menu links.
Screenshot of settings here:
http://nimb.ws/ABPC0h