Thanks guys....I also found some info online talking about that as well (after posting)
However ........... you can't drag and drop things to the main K-Menu (ie. I cant drag an mp3 to the xmms icon located in the main menu) if it was an icon on the desktop or k-panel you could.
So I can't see whay the %u would be in the commmand line of the icon there.
I added Xmms to the Panel and with or without a %u it will launch an mp3 thats drag and dropped to it.
I also added an application buttton of Mozilla to the panel bar (just to see what would happen when dragging things to it etc) well it seems that dragging a html link to it doesn't open correctly it just opens the text in a browser window. (also it seems you cant drag and drop URL links from the Mozilla browser to the desktop ....it opens up a "Filename or clipboard" dialog) If you drag and drop a URL link from the Konqueror browser it does create a nice url link. Crazy stuff!
So now trying to solve the %u has lead to yet another question..haha. Why can't you drag and drop urls from mozilla to the desktop
Oh yeah here's a doozy! The Konqueror Web shortcut on the panel bar doesn't have a %u hahaha.