>I need a work-around for this new "feature" that was introduced in VFP8. When a dropdown list is active and the mouse pointer happens to be over the list, the list item that is directly under the mouse pointer remains highlighted even though i've used the arrow keys to select a different item.

Ken,
How do you know you have selected another item with the arrow keys?

AFAUK, the original item is selected unless you scroll up/down with the arrow keys and use the spacebar to actually select the new item.