Well, further testing, compiled one of the examples from the help file (text tile dragger), and was able to replicate the button highlighting error (had to add a button to the UI). It seems that maybe it has to do with the fact that when you click to start a drag you get a ::mousePressEvent(), but if your drag ends outside the application, you do not get a corresponding ::mouseReleaseEvent(). Maybe a flag is waiting to be reset?
Anyway tiring of all this I ended up just subclassing QLabel, adding drag & drop code and hover highlighting. It has the same problem, but a simple added function 'deHighlightOthers()' is called when ever a 'button' is to be highlighted. This solves the problem, however it would be tiresome to have to subclass other objects, such as checkboxes (which also have the highlighting issue).
I guess the real question to ask would be, is this a problem with QT or is it an issue with how Winblows handles Drag 'n drops?
Thanks for everyones help on this... wait I replied to my own thread.