Okay, here's an improved one.

The approach is the same, but I isolated the "grabbable" part to the top of the object, so it looks like a window. I got a little more purposeful with my image maps to smooth out the drag rendering. I also realized I could associate the drop event to the OnClick, which means you no longer have to move your mouse out of the way in order for it to snap into place. You still have to be a little purposeful, but if you treat the "Drag me" text on the object as the place where you need to be in order to grab and release the object, the whole interaction is pretty satisfying.

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Jeff Harrison
Sr. User Experience Consultant
Evantage Consulting
Twitter: MrJeffHarrison