I've never seen an API for drag-and-drop that I liked. The Java 2 version is truly horrendous. Unfortunately, if you create notational sub-devices and want the window manager to help with them (as per a recent blog entry - it was nice to have the layer stack sub-device in a separate pane, and perhaps make it scrollable in future), then you find yourself in the horrible world of wanting to coordinate graphical behaviour between different window system components.
Hence a morning spent (wasted?) trying to get to grips with the Java DnD API. I really don't recommend it. After giving up on that, I spent an afternoon trying to roll my own. Guess what - if you press the mouse in one component, then drag into another, the new component does not receive any events (not drag events, not motion events). You can tell it has entered, but then no more information. The really crude response (as implemented by yours truly) is to collect the events in the drag source, and pipe them over to the drop target. The astute reader will have noticed that this means recreating the complexity of the DnD architecture that I was trying to avoid in the first place (well not quite, because I have avoided data transfer between applications). Even if I had got Java DnD working, apparently it doesn't work under Windows anyway.
A reflective note - one of the rants that I give my HCI lecture class is that most GUI applications do not really implement direct manipulation. This is a classic example of why they don't - it's just so difficult to for application developers to do it properly. It's in the interests of the API vendors to make every GUI function as much like a disguised command line as possible - because that is easier for them to implement.