Hi Loren!
That's damn cool. The only suggestion I'd have is that instead of clicking on the image to activate the drag region, maybe an OnMouseOver instead? In a prototype test, people wouldn't click and release to drag, they'd just hold it down.
If OnMouseOver of a dragable object two arrows were to appear on top of it on either side, OnMouseOver there would kick off the drag event. You'd probably have to set this up as a custom widget or something to make it easily repeatable.
I *really* like how you've faked the animation. : )
F.