This
Code:
Frame1.DragMode = 1    '(automatic)
Frame1.Drag                   'start dragging NOW
is clever. So you get the offset of the mouse pointer within the frame.
To answer your question:
Set a breakpoint in the Form_DragDrop() event and try dragging.
As long as the mouse pointer is on the frame you try to trag, the drop event of the form will not fire, because the mouse is still over the frame. The event will only fire if the mouse is over plain form client area.
You could come by if you make the frame invisible as soon as you grab it, and visible again when you drop it. This works fine I just tried it. Only a little strange because the frame vanishes while you drag the outline of it.