MANY TRIALS, fixed in Vista
I'm a long-time power user, and this problem really really pissed me off. In the end, this turned out to be partly a permissions issue and partly an ID3 tags issue for me.
First, I prepared to call Apple support line:
1. Updated to the latest version of Itunes
2. CONVERTED THE ID3 TAGS TO ID3V2.4
3. Changed User Account Access Controls settings in Vista
Then
voila! I was able to drag and drop artwork.
ID3 TAGS
Check out wikipedia
http://en.wikipedia.org/wiki/Id3http://en.wikipedia.org/wiki/Id3 for description of the evolution of ID3 tags. But I've been ripping my CD collection for years, and needed to update the ID3 tags to a version that supports integration of album artwork. Itunes will handle this for you: right click on selected tracks and select "Convert ID3 tags". Versions 2.0 and higher support album artwork. I selected V2.4 tags. It had to run overnight to convert my collection.
Permissions in Vista
Windows Vista has a feature called "Account Controls" that likes to interfere with MANY Apple apps. My login account is configured as an Administrator, but with Account Controls turned on, Vista still "protects" me from doing harm with a myriad of protection "Are you sure" popups. This can be turned off from the Start=>Settings=> Control Panel => Control Panel Home => User Accounts and Family Safety => User Accounts => "Turn User Account Control on or off". Open the form, uncheck the box and okay it.
After fixing permissions, and updating ID3 tags, I was able to turn all of the file permissions for folders and tracks to R/W (uncheck "read only") and proceed with updating my library.