The presence of an open handler is what turns an applet into a droplet, Rajeev.
The example below has an open handler that should expand dropped files for you (either individually or in multiples). The (implicit) run handler is included so that, when the droplet is double-clicked, it can also behave like a regular applet.
Save this script as an application:
on open l
tell application "StuffIt Expander" to expand l
end open
open (choose file with prompt "Choose a file to expand:")