So on Windows i can drag a tab from a Firefox window into the desktop and it will open a new window with said tab in it.
On KDE this does not work, no matter the layout chosen, be it "Desktop" or "Folder view", which leads me to the question: Is this a problem/issue with firefox/kde or is this OK.

I don't want to blindly report a bug to Firefox or KDE when this may be OK.

Never tried it as I right click on the tab and select "open in new window". Only a workaround, I know, but at least it works

Just tested this on my Debian unstable install with Plasma 5.6 and Firefox 47.0.1 and it works fine for me.

Note that this is not related to the desktop at all. Firefox will open the tab as a new window when you drag it outside of its own window, not just when you drag it to the desktop. Of course, if you drag it to a window that wants to do something with that tab, then that window gets priority and Firefox will not open the tab as a new window.
EDIT: turns out that Firefox will also create a new window when you drag the tab handle to the page area, so that way you can rule out the other KDE components entirely since everything you do will be contained within Firefox. It might still be related to something like the window manager, but you should be able to rule out many other things.

For example, if you drag the tab outside the Firefox window and onto a Dolphin window, you'll get asked to specify a filename for the dropped content (similar to when you paste some text directly into Dolphin). However, if you drop the tab onto a Konsole window, which doesn't do anything with it, it gets opened in a new window.

As I already said, it works fine for me, but perhaps this will help you narrow down what's going wrong for you.

You might wanna check if this somewhat related functionality still works. You can drag a tab from a separate Firefox window into another Firefox window and add it there as a tab. If that tab was the last tab on the separate window (meaning there would be no more tabs in that window), the separate window is closed (since the tab is now shown in the other Firefox window). If this also doesn't work, then it might indicate that something is causing problems for the whole window/tab functionality.

It have always worked on my Kubuntu, with KDE4 and with KDE5 too.
It should be a bug in Firefox.

On arucard's post I dragged this tab to black forum stripe with "Board index" and "KDE Neon" and, hey presto, Firefox opened a new window. Thanks for the hint

It works for me (KDE Neon developer stable).

Thank you for the responses.

I created a new, clean firefox profile and fallowed your advises. I can do everything fine but my original inquire still remains, can't drag and drop a tab into the desktop so it opens in a new window UNLESS i "Lock Widgets".

@arucard wrote

Of course, if you drag it to a window that wants to do something with that tab, then that window gets priority and Firefox will not open the tab as a new window.

that got me thinking.

With "Unlock Widgets" when i drag a tab into the desktop a "transparent square" appears around my mouse, the same one you see when adding a new widget to the desktop. Soooo KDE or a component of it, KWIN in this case i believe, is treating the firefox's tab as a "widget" i thought.

I tried turning desktop effects off and on (ctrl+shift+f12), no go. Next i "Lock Widgets", tadaaa it works.

Now i am still not entirely sure if this is a bug/issue with either Firefox or KDE, but i do believe that a feature is missing or incomplete making things confusing.

For example, i can set my desktop layout as "Desktop", drag any file into it and an "icon" of said file will be created. For folders, a window titled "widget" will pop with 2 options: "Folder view" and "Icon".

This feature/functionality is missing. Who's the one lacking it? firefox? kde? not sure, but i'll be more than happy if it ever lands where it has to. Having this will avoid confusion with users like me, whom as things stand may see either a "problem" or a "missing feature" they have on MS Windows, instead of thinking "oh, this works different here", since they experience something that works, although different.

I unlocked my desktop and tried it again and it does indeed work the way you describe, trying to add an icon. I think that's the bug here, it's probably also present in Dolphin.

When you drag the browser tab to the (unlocked) Desktop, it should add the icon on the Desktop since it already recognizes it as something that should be added (because it's showing the white square). If it's not technically possible, then you should get a notification saying that the icon can not be created (with a reason why, if that can be understood by end-users) though it would be better if it just works. The problem here is that it fails silently. In Dolphin, you first get a dialog window to provide a filename for the dropped browser tab (with Data format: application/x-moz-tabbrowser-tab or text-/x-moz-text-internal) but even if you type a filename, no file is created. I think these 2 problems are related, since in either case no icon or file is created.

Well this is in fact a known bug, Bug #337711