Hi rustyredhead,
Thank you for using Microsoft Windows forum.
You cannot manually rearrange the files/pictures by dragging within the folder in Windows 7. This change is by design in Windows 7. You can only uncheck the option to auto arrange icons on the desktop and can use it only on the desktop.
If you have any concerns or feedback with respect the issue or any other Microsoft application, please visit the links below and post the same:
Microsoft Connect**http://connect.microsoft.com/**
If you are referring to the Arrange by date, size, etc then you can still do that by simply Right clicking and selecting Sort by option in the drop down menu when inside the picture or file folder.
Regards,
Azeez Nadeem - microsoft Support