I am having the same problem on FreeBSD using the following java:
<pre>java version "1.4.1-p3"
Java(TM) 2 Runtime Environment, Standard Edition (build 1.4.1-p3-root_21_sep_2003_16_43)
Java HotSpot(TM) Client VM (build 1.4.1-p3-root_21_sep_2003_16_43, mixed mode)</pre>
I'm trying to build 1.4.2 to see if that works.
I couldnt get it to work until I fiddled around a bit. Acts like finder drag n drop - i.e. works for me if you click, drag, and only THEN hold CTRL + SHIFT