The rules for The Drop specifically mention sniping sentries at a distance as an example for which The Drop might apply:
Sometimes an attacker is able to catch a foe off-guard and gets “the drop” on him. This usually happens at a distance of only a few feet, but other situations may occur (a sniper on a nearby rooftop).
So yes, it does apply to ranged attacks. The rules then clarify that it is up to the GM whether The Drop could occur, but in general it's when the foe is unaware of the attack. If the enemies are being picked off one by one with a bow (which is more or less silent), then yes, it would apply. Also it's important to note that The Drop happens when the enemy doesn't know that the attack is happening, not when they know it's happening but don't know where it's coming from.
However, I can think of a number of reasons why it wouldn't apply for attacks beyond the first one:
- The guards hear the quiet sound of an arrow going by
- A guard manages to scream as he goes down, especially if they didn't do a called shot to the head
- A guard on patrol doesn't meet up with another guard on patrol
- A guard on patrol spots a dead body
A good way to simulate all of these factors, such as the sound of arrows and timing of guard patrols, is to use the Stealth rules, which seem to be what you were thinking of when you asked about Stealth and Notice rolls. To clarify, here's how it works:
- Inactive Guards: Target has no reason to suspect anything is wrong. Attacker makes a Stealth roll when moving or attacking. Failure means the guard becomes active (they heard a sound).
- Active Guards: Target suspects that something is wrong, but may or may not suspect an attack (the GM may rule that The Drop would apply if he thinks the sound may be innocuous, but not if it thinks it's a sign of an intruder who might attack). Attacker makes a Stealth vs. Notice roll when moving or attacking. Failure means that the guard has spotted the attacker.
I'd rule that every time an arrow gets fired, the group should make a Stealth roll to ensure that they timed the guard patrols right and made sure that none of the other guards detected the killing. Especially if the guards have reason to expect attackers at some point, then I'd rule that as soon as they become active, The Drop is no longer possible.
Of course, I'd also rule that if an arrow whistles past a guard's head or if a guard gets an arrow in his chest, he knows for sure that an attack is happening and is going to scream out for help. All the enemies will be aware of the attack and are no longer eligible for The Drop; no Stealth roll will prevent that. Modern snipers are much more effective than medieval ones for avoiding this sort of situation.
As for the question about a Surprise Round, attackers who take advantage of The Drop are considered On Hold, so they are taking the surprise round during the attack they are making The Drop. If they fail to take out the enemy, then normal initiative starts.
Update: Pinnacle Entertainment Group's Clint Black has since stated here and in other posts that getting a Raise on a Stealth roll is usually required to get The Drop on an attack. Of course, the GM can always adjust that based on the circumstances of the game.