For whatever reason I have been unable to resolve this problem. I've been trying for a few weeks -- different mice, trying to find a setting somewhere but to no avail. I can highlight both in explorer windows and on the desktop using the old click-and-drag box, however I am not able to drag the icons. I've tried two different mice, although they were both ps/2 (no USB mice here at work for me to try.)
Any ideas would be pretty awesome.