This has happened to me 3 times in La Paz, additionally I WATCHED it happen one time in La Paz to another traveler (I tried to prevent it) and now one time it has happened to me here in Cuzco.

It is a variation of the "Spilled something/distraction" robbery technique but I think it is slightly different enough to warrant mention.

The thieves operate in pairs of 2 or 3. One throws dirt or coffee grounds or whatever up in the air and onto the victim's hair. While the victim is spinning around looking up in the air to figure out where the stuff came from the other thief picks the victim's pocket. If the victim looks around suspiciously at the thief then the thief will usually point up and tell the victim that some thing came from a window -- And THAT is how you know who the thief is -- Only the thief will bother to tell you to look up again and claim it fell from a window, or better yet the sky. All other innocent locals will know what is going on but they will not tell you to look up again.

The tip is:
1) If you feel something fall in your hair do NOT look up -- look down at your pockets and/or for your valuables. Quickly feel for them -- you may also feel others hands at the same time.
2) Who ever tells you that stuff "fell from the sky" is probably the thief.

But beware of confronting the thief because one of the pair may also be the 'protection' for the group and be packing a knife for confrontational situations.