Using current PortableApps WinSCP 4.1.7.
In main launching window, select "Preferences" and beside "Other general options:" click on "Preferences...". In the new window, select "Storage", and the setting in question is under the "Temporary directory" section. This setting is tied in with the "Drag & Drop" settings as well.
I do not have the Explorer plugin installed (especially since this is supposed to be a portable app), so I cannot use the "shell extension" for Drag & Drop features within WinSCP. Instead, I have to set it to use a temporary folder to enable Drag & Drop features.
Since I use the temporary folder for Drag & Drop features, I have to configure my Storage settings and set my temporary directory settings correctly. By default the PortableApps WinSCP program sets the temporary directory setting to "Use this directory" with a value of ".\" for the current working dir.
Now, since this portable app is being run from my USB key (which may have a short lifespan compared to hdds), I do *NOT* want to use my USB key as the temporary storage location! Instead, I wish to use the systems temporary storage location ("Use temporary directory of system" setting). However, when ever I select that setting, click on OK and save the session settings as the default settings - upon re-launching WinSCP, the temporary directory setting is re-set to use the USB key.
This bug is quite severe, as it causes unnecessary read/writes to the USB key device which should not be used for temporary storage for the Drag & Drop features of WinSCP. Furthermore, having WinSCP use the temporary directory of the system should in fact be the default setting, even though leaving temporary files on the local system is something you try to avoid in a portable app.