Page Template Drop down disappears when static front page is selected

It’s normal because custom page templates are only for pages. Once it becomes the page for posts it’s no longer displaying Page content. It’s displaying a list of posts. A Page Template wouldn’t be designed, built, or optimised for displaying a list of posts.

If you want the main blog page to appear different to the index template, then you just need to create a home.php template, as you can see in the Template Hierarchy.