I really thought someone was handing out baggies for code. As an average programmer, I am happy with KB and middies.

I don't think I've ever seen "swag" used. Are you implying that "swag" means trade show stuff while "schwag" is drugs? I've always seen schwag as the term used for trade show stuff, and I was unaware of the drug connotation. Google and Wikipedia seem to agree that it is an acceptable spelling (and they also agree with you that it can mean drugs).

"Swag", on the other hand, doesn't seem to mean what you think it means.

http://www.startupschwag.com/2007/09/swag-shwag-schwag/ old post but relevant