Why does preventing a drop with JQuery cause issues?

I have a menu with items that can be drag and dropped into a sortable list of main content. However, I want this content to be multiple levels deep. So, for example, a certain item in the menu can't go in the first level list.

Basically, I just want to reject any item that doesn't have the class level0 from my main level list. Doing so however causes issues with future drops and sorting. Any attempt to sort the items in the main list after the rejected drop displays the rejected item during the drag. Also, any other attempt to drag the rejected item doesn't work.

I made a JSFiddle showing the error.