I was able to solve this issue by going into the registry and correcting all values that pointed to the now defunct directory. I'm still curious, however, as to how this would have happened in the first place. And also, if I am to drop a file into a folder on the Desktop again, and then later delete that folder, will I have the same issue again?
Re: Drag&Drop is trying to drop into a folder that no longer exists
What version of WinSCP and Windows are you using?
What you describe can be a consequence of a bug in Windows 10 build 1803.
There's a workaround for the problem in the latest versions of WinSCP.