What is the proper way to write this term when writing product documentation? Hyphenated or not?
drop down list
If it's just the compound adjective, use drop-down list.
Note, however, that there are classes of components in various frameworks that are called DropDown or DropDownList or various alternatives of the same thing. In such cases use the framework name as is.
In the dictionary it's drop-down: http://www.merriam-webster.com/dictionary/drop-down
Also "drop-down" prevails on tech websites like apple.com or microsoft.com.
I think that this is the best indicator: http://books.google.com/ngrams/graph?content=drop-down%2C+drop+down&year_start=1800&year_end=2000&corpus=15&smoothing=3&share=