I killed a pirate and picked up his "space fuel" cargo, then discovered this is illegal except at pirate bases. The Locals demand that I stop and drop my cargo, but I can't figure out how? I can [O]pen my cargo bay and [F] selects the cargo; now how do I dump it?

You already did the right steps only thing to do is
You just need select eject on space fuel by pressing right or left arrow key on the keyboard then enter keyboard button on the cargo and right arrow key towards the written eject to fully drop it and then enter again

Also gonna check x2 to see how it's done there,might be the same for x:BtF
Edit: Checked x2 for this already

ninja'd

To slow ;)

Ok currently playing this game and you have to press shift and F to drop cargo.
You can also just press F first and then O and it will also drop the cargo.
I at least tested it with energy cells.