Correct . In the current web designer a control can't overlay another control, and that's by design.
Web pages use a responsive grid layout rather than absolute positioning. Every control occupies one grid cell (optionally spanning several rows or columns) at each of the three breakpoints (Compact, Medium, and Wide) and the page root plus each container (a GroupBox or TabPanel tab) is its own separate grid. If you drop or drag a control onto a cell that's already occupied, it's placed in the next free row in its column rather than sitting on top of the other control. The same normalisation is applied whenever a layout is loaded, so an overlapping arrangement can't even be saved into a web page.
There's also no z-order on web controls - that, along with absolute Left/Top positioning, is a desktop-only concept. It's a deliberate difference: a web page is a responsive layout that reflows across breakpoints rather than a fixed canvas.
One thing I'd like to check from your screenshot: the blue selection bar appears detached from Listbox2, and its right edge/caption looks clipped. Does that persist after switching breakpoints or closing and reopening the page, or was it just a mid-drag moment? If it sticks around, that part may be a designer rendering bug and I'd like to get it fixed.
