Photoshop won't open a file dragged in or from the clipboard

I'm using CS2. When I drag a file onto the open workspace, I get a "new" file dialog, whereas it used to open the file. "open with" also fails from apps I have tried it with (not a file association thing, I'm explicilty telling it to use CS2) - it opens Photoshop, but doesn't load the file (does nothing). Paste is greyed out when I copy the image to the clipboard from another app when I try to paste it into photoshop.

For grins, I tried using CS and it did the same thing.

Tried a reboot, no help.

I *can* drag and drop from Adobe Bridge.

I can open the files just fine.

This worked fine before.

Did you try resetting Preferences as per the FAQs?

Resetting the prefs had no effect. Also tried the "always import from clipboard" reg fix - also didn't help.