Drag'n'Drop for re-arranging bookmarks still works in Firefox 4.0, in both the Bookmarks Sidebar and the Library window, along with the Bookmarks drop-down menu. But it is a little flaky there, as always, sometimes I manage to open the bookmark while moving it, so I avoid moving bookmarks there.

I think this was only a temporary problem I was having. When I opened it today -- not sure if I did anything to make it better or not, but it was working!

I found that the Torbutton add-on disables Drag and Drop features (for security reasons). I disabled Torbutton, made my changes, then re-enabled Torbutton.

the torbutton extension causes a total break of drag&drop functionality in firefox 12 and upwards. the extension is no longer maintained, the developers recommend a switch to the tor-browser bundle: https://www.torproject.org/torbutton/

The Tor Bundle has more stuff in it than I want or use. It's easier to say "use the full updated bundle instead of Torbutton", but for me it's a lot of trouble to install the entire Tor Bundle. In contrast, it's not that much trouble to disable Torbutton once in a while, now that I know what the problem is.

Besides, I have read that there are about 5 or 6 other add-ons that also inhibit Drag and Drop functionality, not just the Torbutton add-on. The list is somewhere in the main Firefox support section (but it's tough to find the answer there twice).

The generic add-on troubleshooting page is at:

https://support.mozilla.org/en-US/kb/Troubleshooting-extensions-themes#w_disable-all-extensions