Drag and drop bugged: Apple Support Communities: Apple has fixed most of the NVIDIA 9400M issues and other bugs that affected Air Display (and all other third-party video drivers) on certain machines. As of Mac OS X 10.7.3. The only remaining known issues are:
On 15" and 17" late-2008 through mid-2009 MacBook Pro models, drag-drop is broken unless you employ this workaround: After every Login or Restart, you will need to Sleep and Wake the computer.
Yesterday I restarted my laptop for the first time in... well, since my last system update... and found a perplexing drag and drop bug.
I was thinking, "Hey, WTF?!" for about 12 hours before searching for a solution this morning.
Strange bug, Apple.