Files on the desktop cannot be dragged into a folder on the desktop. They can, however be dragged from an instance of PCManFM and dropped into a folder on the desktop.
In order to reproduce it, see amjjawad's video at http://www.youtube.com/watch?v=ix6P6ZwQR-k
DistroRelease: Lubuntu 13.10
Package: pcmanfm 1.1.0-0ubuntu2
Also tested on two different distros (Puppy and Semplice) with PCManFM and libfm 1.1.0. On both distros drag and drop doesn't work on the desktop.