18 Jul 2010 at 19:00 - 4
Heros, Henchmen, and minipets have all been observed or revealed that they take drops. You never see the item drop or pop up in the chat log because upon killing an enemy, the game automatically allots items items and reacts accordingly. If the item is dolled out for one of these party members, it just hands it directly to them in a sense. If its allotted to a player, the item is spawned on the ground and a message is posted to alert less observant players.
Party size effects white item drops, the higher the party number, the more whites you'll get. Holiday items, greens, golds, gold (coins), tomes, and key drops are not effected by party size, However, the fewer party members means these items are more likely to be given to you instead.
And yes, if party members are out of radar range, item will not be allotted to them in the distribution process. The increased number of white drops still applies though.