Will players drop down if they are being considered by a school from a lower division?  I know a DII prospect won't drop down if he is considering a DII school but will he drop down if he is a DII player but considering a DIII school he was pulled  down by?

Yes, I have seen DI recruits drop down while being considered by a DII school.

If they're a DI recruit and they're being considered by a DII school, that says they've ALREADY dropped down (or else how is the DII school even being considered?).

Pulled them down...  Or that school had higher prestige, or was within 70 miles, and he dropped for that school sooner.  Just because a guy is considering a school in your division doesn't mean he's recruitable for you.

Yes exactly - the players were on my "pull down" list initially where I was a backup option and they were considering another DII school.  Later in the recruiting process these players dropped down to where I could recruit them if i wanted to.

However, there have also been cases where the player never drops down to me.  I'm just saying it is possible, I'm sure it has to do with other variables - prestige, distance,  effort put in by the other school, etc

Recruiting is actually very easy when you learn how to do it.