The target playlist entry should already be highlighted when hovering over it, the same as when not drag'n'dropping. If it isn't, please try another skin, in case the skin's colour scheme means that it's not very noticeable.
I thought that instead of highlighting the tracks entries themselves xmplay can highlight the space between them. Thus when you hover (while dragging files) the upper half of a track row , a line above will be drawn and the files will be inserted there; if you hover the lower half a track row , a line will be drawn below it and the dragged tracks will be inserted beneath it.
Regarding the 2nd idea, that seems like it would break the ability to easily drop files to the end of the list. Currently, if files are dropped outside of the playlist but in the playlist panel, the files will be added to the end of the list. Wouldn't your suggestion prevent that?
One solution would be to accelerate the scrolling speed as you move away from the lower or upper edges of the list. After a distance the scrolling speed can be as high as getting to the end (or beginning) of the list instantly.
Another option can be to drop the files at the end of the list when you add right click to the constant hold of the left button(while drag and dropping files).