The drop target area for the first folder in the list is located below the folder's row (top third of the row below) if the list isn't long enough to trigger vertical scroll bars. Instead, the folder's row targets the current directory. If the list is long enough to cause vertical scroll bars to appear it works as expected.
I'm using build 3767.
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In Build 3999 the problem happens irregardless of whether or not the scrollbars are trigged. The drop area for the first list item is always in the top third or so of the item below it and requires careful positioning to drop items into that folder.