Heh, there are several theorys as to how loot drops. Although there are somethings we do *know* For certain.

All monsters access the "global" loot table for their level range.
There are Zone or Instance specific loot tables.
There are loot tables for individual players (E.G how one item can be looted by several players)
There are mob specific loot tables.

I'd theorise that these loot tables are determind at diffrent times.

Global Loot table is most likely upon mob spawn.
Zone/Instance table is most likely the same.
Player Loot tables are determined upon looting.
Mob specific loot tables are upon mob spawn.

This is, of course, conjecture and some observation.