As said, I just tried to prevent the dyeing of Sheep.

I used the following settings for that:

sheep:
- trigger: right_click
  tool: dye@0
  drop: DENY

(I had tool: [dye@0, dye@1, dye@2, etc.] first, and then tried it with just one dye, to see if multiple dyes might be the issue, but it still doesn't work.)

What happens is that the dye still gets consumed and the sheep still gets colored.
However, I've added a random test message to the above, and the message gets displayed.
So it seems the trigger gets at least called, but the "drop: DENY" doesn't actually prevent the dyeing of the sheep.

This was with craftbukkit-1.5.2-R1.0 and OtherDrops 2.8b.566.