You can extract files with 7-zip File Manager without drag and drop. And it will not uses temp files in that case.
7-Zip's folders settings is used for another operations. Extraction operation always uses temp folder that is set in Windows for user.
That issue was fixed in 7-Zip 25.00. Check latest version of 7-zip.
What browser? Try another browsers.
Look 7-zip.chm file.
You must use the correct character set encoding in the shell script file. Use the switch "-pPassword" without spaces for password .
check it again.
Thanks for report! I'll fix that issue with another way in next version of 7-Zip.