Firmware version detection is read directly from the PARAM.SFO file within the game, UMDGen simply displays this information. It doesn't try to determine whether it's correct or not.
Drag and drop function - this bug has already been fixed (download latest updated version 3.00.1)
But thanks for reporting it
Padding is the number of 'blank' space to insert between each file in the generated ISO. Setting to None will save the most space but users have the option of increasing the padding values if they wanted to.
Disable Optional Path function - UMD Standard requires both L optional and M optional Path Tables (Part of the ISO Header) but, as in the case of vcdromx, some ISO Generators don't use them. This option was only added for anyone wanting to use the same LBA positions from a previously created vcdromx image - I would suggest, unless necessary, to leave this setting to default.