Yes makes sense. I should have mentioned that I'm not dragging the files from Finder, but from a (free) audio file manager called ADSR Sample Manager. The software doesn't have a delete function, but since it's made for dragging audio files into software like Logic, it turns out dragging to KM works too.
Thanks for the info about the macro triggering multiple times. Indeed, the log is telling me "More than 50 simultaneous macros - aborting everything"
...but that may be delaying an inevitable problem/crash
You might be able to do something like a "collector" macro that simply stores those references into a global plus a timer macro fired by the first "collector" instance that monitors the global and, if it does't change in over a second, kicks off your "main" that does whatever using those references (and clears the global, ready for next time).
Yes, you are hitting the 50 macro emergency abort (it would only be 25 files if you are executing a submacro, so I'm confused by that).
Adding a delay (or anything else) wont help, because the macros are all going to be executed internally by Keyboard Maestro and when it hits 50 it's going to cancel everything (and maybe then the remaining ones will still be started, I'm not sure).
Increasing the limit as @Nige_S described will increase the number of files (and avoiding the submacro would double the number).
I'll look to see if I can adjust the behaviour of the action to more drip feed the files if a large number of files is dropped.
This is resolved for the next version. Keyboard Maestro will initially start about 20 macros (scaled up for larger values of the maximum number of macros preference) in this case, and then as the macros complete it will trigger more.
This only applies to this specific case of dropping a large number of files on to a palette entry.