I’m having a similar issue however there are some things that need to be stated/understood. When you are simulating like this and have bodies set to either not simulate or be locked (set to kinematic) they are immovable, and the mass is infinite (no amount of force will move them). Your mouse, is infinitely mass(less) and has an infinite amount of pull when you click and drag. So the objects you are pulling are pretty much linked to an immovable object and an unstoppable force.
If you were to simulate the entire object, odds are that the object wouldn’t stretch like what you see. However the issue I’ve seen is when someone grabs a character and drags them in a click and drag scenario on objects that have dangly bits, those things yo-yo like crazy because of the same problem, it’s an infinite amount of force being applied and I have yet to find anything that tells the physics constraint that it is absolutely immovable or unbreakable (even for the tiniest of frames). Oh and setting the breakable settings to some astronomical number doesn’t help either.
Setting up Substep kinda helps this, but I’m just getting used to that and haven’t seen how this affects framerate across a multiplayer platform.