Note, this only happens when the items are dragged across the folder pane on the left hand side, so it can be worked around by taking a circuitous route with the mouse pointer. However, I would like a fix that allows the direct route across the folder pane.
I have seen this on more than one Windows 7 installation, but all the ones I have tried are attached to a domain and haved mapped drives. I do not know if the issue is caused by this or something else. If anyone without a domain and/or mapped drives can confirm whether they have the issue it would be helpful.