Just a small hint in case anyone has this same problem as me ... I had a bizarre problem whereby I suddenly couldn't drag and drop anything -- not in the Finder or System Preferences or anywhere else.
First thing I tried was deleting preferences, but that didn't work. So I just simply reinstalled 10.2.6 combo updater and everything was back to normal.
[robg adds: Apple has a Knowledge Base article about this problem, but it's a bit older and refers to 10.2.2 as fixing the issue. This is the first I've heard of the problem in 10.2.6, but if you've had a similar problem, please share your experience (and the fix!).]
Mac OS X Hints
http://hints.macworld.com/article.php?story=20030531184641335