Is there any software that makes it possible to create a draggable desktop inside another desktop (where one desktop acts like a window within the other desktop?) I think this would be an extremely useful user interface concept, but I haven't seen it implemented so far.
I note you haven't mentioned an OS here - In linux/X you can use the xephyr X server to nest multiple X sessions
here's an example of a 3 layer nesting off wikipedia .
I also use a poor man's version of it by remoting into a system and treating that as a 'nested' session. Not as efficient, of course.
I am actually extremely unclear about what the user or business logic would be behind having a desktop, that can be dragged within/on top of another desktop as it's own window.
I do find it useful to have multiple desktops that are easy to switch to however, and would do just as good of a job as having a desktop that could be dragged within another one.
It's actually really wonderful to have multiple desktops, though nothing really beats having multiple monitors. However if you are like me, and do not have that as an option, then multiple desktops is the next best thing.