Can you use the drag feature in other programs? Can you drag over the border in Outlook Express? Or some other programs that allow you to drag?
You might try as long as your mouse is a USB and not a PS1, unplugging the mouse and plugging it back in. Just to be sure you dont have a mouse issue. You might even try, if you have another mouse, changing the mouse out to see if your mouse has an issue.
Let me know if unplugging/replugging in the mouse helps.