First, confirm the folder settings are correct. On the View->Icon view page, ensure it is set to "Single column". On the Sort page, both "Folders first" and "Always maintain sort order" should be unchecked.
Next, as you probably know, you have to Shift-Drag and Shift-Drop to move a template icon - otherwise it you'll just create a new object from that template. When moving an item to the top or bottom of the list, I find it more reliable to put the icon in the second or next-to-last position first, then move the current first or last item to wherever it should be.
Finally, *close the folder* before checking a menu to see if things are in the right order. Doing so _should_ trigger XWP to update its list of objects - but sometimes it doesn't. You may have to play games with it by reopening the folder, moving some other icon, then closing it. By the time you're done repeating this process to put that icon back in its correct place, the update should have occured.
Note: on a *new* installation the order will _never_ be correct (and this can't be fixed) because XWP relies on the folder's .ICONPOS EA to get the correct order - and that EA isn't created until the folder is opened, rearranged, and then closed. Likewise, it depends on the WPS updating .ICONPOS when you rearrange things. To date, I haven't been able to find a way to help this process along.
