Just skimmed over some of the responses, but something that the OP may not realize is that if someone leaves the group and their name disappears from the drop down list, that could cause more problems than it solves by shifting the list as you're trying to pass an item.
An option I would like added is the toggleable ability to "pass only once" If I pass a bound to character item, I have the option to "pass only once". The person it's being passed to can then loot it, or leave it. They cannot pass it again. Also a confirmation box "are you sure you would like to pass XXX to player? Y/N" That could solve many issues.