In version 1.2.13 a bug occurs that, as far as I know only happens in multiplayer with with friends via Xbox live. The bug it self seems to happen after a random amount of time, it could be 10 minutes or an hour, the bug prevents whoever is affected by this to be able to again drops by mining a block. The weird part about this is not all blocks are affected by this. (this affects a player not the world, so not everyone is affected.) For an example you mine dirt with your hand and you don't get a drop from it but you can mine a cauldron and get the drop consistently. Anyone on the server can be affected, even the host, and the only way to fix this is to leave the world and re-host it, or make a copy of that world and then host it. This is not a permanent fix though. This bug will come back after like I said before, a random amount of time. I have experimented with this bug to try to find a solution other than leaving the world. All of which failed. If I can get this bug on camera I will post it to this Issue.
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[Mojang] Mega_Spud (Jay)
Thank you for your report!
However, this issue has been closed as a Duplicate of MCPE-32335.
Your additional information and observations are very useful, so if you can add them to the comments section of the parent issue it would be appreciated.
If you have not, you might like to make use of the search feature before making a new ticket, as it's likely that the issue has been reported already.
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I have found out what causes this bug, sometimes when eating your hand can be stuck held out. when you try to mine blocks it does not drop anything. The easiest way to fix this is to eat or drink something.
Oh and to be clear tile drops are on and the permissions are set to allow the breaking of blocks.