After testing I would like to say that I no longer think that it is detrimental to use dropped domains. Just a couple of months ago I launched a new site using a domain that had been dropped several times without any penalty. Looking at search results I can now see several new domains targeting semi competitive key phrases again without any noticeable penalty.
Prior to this year’s Feb and May algo update there was no doubt that dropped domain simply did not rank as well as other aged domains especially for competitive key phrases. It now seems clear to me that this is no longer the case.