Könnte es auch eine Touristenfalle sein, oder ist das zu negativ?

Amer. Heritage Dict. 5th ed.:
drag - ... (n.) .. 7. [Slang] A street or road: the main drag.

Webster's 3rd unabridged:
¹drag - (n) ... 7: (slang) STREET, ROAD {strolling up and down this bustling drag ...} {the main drag}

A drag is a central street where (young) people go to socialize, to see and be seen. They drive, or less often walk, up and down the street, watching each other go up and down the street.

In Spanish-speaking countries it's the plaza; in the US, a more car-centered culture, it's often Main Street, or another centrally located street. Teenage drivers cruise from one end of the drag to the other, then turn around and go the other way.

Cf. drag racer, drag racing -- cars that race on a straightaway.

A tourist drag is just the street where the action is, where most people go, especially tourists. It's not specifically a tourist trap, though of course in practice that could also be true.

Auf Neudeutsch würde man auch sagen: Touristenmeile.

... oder auch : Hauptanziehungspunkt für. T. ...

Kathmandu's main tourist spot is called "Freak Street"

"spot" passt in diesem Fall besser als "drag"

The original is in English, so suggesting a different word in English doesn't really help.

#4 looks good to me, since it keeps the idea of a street.

Not that the original poster probably cares after 10 years, but for anyone else who comes along. (-:

One other tip: Katmandu doesn't have an H in English.

*edit*

Or rather, it didn't use to; but now apparently for many speakers (though not me) it does.

related discussion: Katmandu (Engl.) —> Kathmandu (Engl.)?

*3rd try to edit*

Here's a New Entry thread. Hopefully.

related discussion: drag - die Straße / Hauptstraße