Well, it's hard to say exactly what you're doing wrong since you don't include that, but the example in the xlabel help file works perfectly fine for me.

I also tested it using !xtextappend...

Both wrote the path with quotes. Note: No quotes were needed around %[droppath]% in the first example. The var used there, of course, is "dropped."

Also Tested - LabelOnDrop shortcut "$ThemeDir$"
It properly created a shortcut to the file (or directory) in the theme's directory.

One thing I had problems with was sticking the %[droppath]% in an mzscript var and saving that. It wouldn't save with quotes, even if I used the mz escape for quotes.