To reproduce the issue follow the steps:
1. Open "Repro" project
2. Open "1.unity" scene
3. Ensure the Tool handle uses local orientation
4. Drag the GameObject named "Cube"
5. Cubes transform becomes too sensitive and GameObject coordinates starts jumping around

Repro video: http://screencast.com/t/34sY1Wds7qeI

About the scene:
There are two cubes included in the scene.
One cube has "ExecuteInEditMode" script attached which sets Cube to look at selected GameObject