I used to have this issue on my Vista 64-bit system: I’d go to drag a file from the desktop to another location either on the desktop or in a nested folder on the computer. In any case, I could not drag the icons. It seemed as though as soon as I’d try to drag it the selection would disappear.
A simple reboot would fix that right up.
I’m not a big fan of rebooting my systems – I try to leave them up and running as long as possible without being a security risk (so roughly a month at a time – although my test slackware server would stay up for a year at a time). I also hate it when software installs and then says “reboot to finish”. I almost always ignore the requests.

So rebooting a system whenever I can no longer drag and drop items on my system is a definite no-no. Anyway, I never really looked further into it as I went back to using XP after trying vista out for a while. I chalked it up to a “vista issue”. Don’t we all?

Fast forward to last week: A coworker of mine complained that he could no longer drag and drop on his Windows 7 x64 system. I told him that he should reboot and it’ll work after that. He rebooted. It worked.

But then today it happened to me. Argh. I closed out of all my terminal sessions to see if that would fix it. Nope. I closed out of all my java-based applets/applications. Nope. I closed all my command windows and MMC windows. Nope. I closed all of my chatting programs (MSN/Pidgin/Skype) and all my remote help programs (gotomeeting/tightvnc/glance/logmein). Nope. I closed all my Microsoft programs (Outlook, Internet Explorer, Excel, Word) and my Mozilla programs (firefox, thunderbird). Nope. Argh, wtf? I even closed my putty sessions and my foobar2000 music player. Notta.

Then I looked in the services.msc and started randomly restarting all available services. Nothing. This was starting to take more time than actually rebooting the machine after installing windows updates.

After a bit of searching, I find a “fix” for XP machines:
regsvr32 ole32.dll
regsvr32 /i shell32.dll

As this is a Windows 7 64bit machine, I have my doubts. But I try them anyway. Nothing.

Then I find this site (http://astahost.com/info.php/problem-drag-drop_t14544.html) which tells me to press and release (hit) the escape key. Damn, all that wasted time.

SO, if you want to know how to fix it:
Press ESC

That is all.

***EDIT***
I also had some other issues that were not solved by the ESC solution above. After pressing both CTRL buttons several times, both Windows Key buttons several times, and both ALT keys several times the problem went away again. Stuck keyboards FTW!