First you need to understand the difference between Filters and effects. When you create a drop shadow with the filter, it’s making a drop shadow as it’s own element that you can not change. What the “Create Separate Shadow.” does, is it doesn’t link the shadow to the image so it can me moved, like it is it’s own object seperate object. Without that being checked, the object and shadow are linked.
When you create a drop shadow with an effect, that is an illustrator vector image that can be changed and modified (by using the appearance window). It will also have a transparent background, which I’m guesssing is what you want,
Let me know if that makes sense
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