Drill Interpolation is a somewhat misleading term. This is actually a ROUTING cycle, but was created to allow for a way to cut a hole when there was no drill bit of the correct size available and there was a router-bit that was some amount smaller than the hole to be cut.
It is important to note that the router-bit should be smaller than the hole.
It is also important to note that you should use a somewhat slower speed to interpolate the hole, or you may end up with an egg shaped hole.
Sometimes it is helpful to set the safety plane a little higher if you are using Cutter Compensation to allow the machine time to make the cutter comp move before it starts moving the cutter down into the hole to interpolate.