I can confirm that I see the same symptom. However it does work
immediately after starting firefox. At some point it stops working, and
I need to restart firefox before it works again. I think what triggers
the bug is attempting to drag the "Latest Headlines" folder into another
folder.

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https://bugs.launchpad.net/bugs/468337

Title:
  Regression: firefox 3.5 in karmic - not possible to drag&drop
  tabs/bookmarks

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