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Thanks, I managed to fix it. For some reason I couldn't partition the disk, it kept saying no space left on device even when I split the partitions in half (only a third of the disk was used). So went for the clean install and so far so good - I lost nothing and everything's back as it was.

didn't know you could partition without wiping everything. was going to connect it to my old powerbook and copy bits and pieces in target mode, then put it on the hd... thanks for this. hope to drag and drop again soon (:

thanks rafael, was hoping for a less drastic solution for the same reason - i couldn't back anything up. got an external hd now so looks like i'm going to have to bite the bullet... if anyone ever finds another solution to this mysterious problem please post!

I am having the same problem. Two days ago, I suddenly couldn't drag and drop anymore, from ANY application. I found a few threads that deal with this but no real solution. The OS and model don't seem to be the issue. The macosxhints Forums - Can't Drag and Drop [Archive] Macrumors - Can't...